There’s no shortage of news about Bernie Madoff’s astounding Ponzi scheme through which he (allegedly) bilked a great many investors and charitable foundations out of billions of dollars. The fact that he is out on reduced bail and has used that freedom to send millions in jewelry to his children and write checks for a few billion more to friends and family is even more astounding. But what amazes me is how Congressional leaders are posturing about it. They’re appalled, they say. Something must be done, they promise. But wait. Isn’t that the pot calling the kettle black?

For those few of you unfamiliar with how the Ponzi scheme works, it’s where a shyster takes in money from marks investors to “invest” for them, pockets it, produces spurious reports illustrating the stellar performance of the “fund’s” portfolio, gets more investors and uses some of the newly invested money to pay a few of the earlier investors, then continues the practice until he has a ton of money in his pocket. The portfolio, of course, is essentially worthless and he has all the money squirreled away in off shore accounts. Then he moves to an island somewhere in the Pacific or to a country without an extradition treaty with the U.S. and lives large. The trick is to keep the investors believing their investments are earning astounding returns while he collects more and more money from new investors. You’ve probably heard of Ponzi schemes, but Madoff’s may be one of the largest such frauds (ahem…alleged frauds) in history.

Or is it? Isn’t that exactly how our government has been operating our Social Security system?

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Cousin Mike sent this a couple weeks ago, along with what I think is someone’s incorrect mathematical explanation, under the title, “How You Can Tell You’ve Ticked Off an Engineer”. It works as a pretty good joke on its own but, to bring it full circle, you need to know a little history.

Seems engineer George Vaccaro took issue with Verizon for quoting him “.002 cents per kilobyte” for air time prior to his visit to Canada but billing him “.002 dollars per kilobyte” upon his return. After several unsuccessful attempts to explain the hundred-fold difference to Verizon, he recorded a twenty-six minute conversation with a Verizon manager which became famous on YouTube with more than a million hits. YouTube has since taken it down, but you can still listen to the original recorded exchange on Putfile or read the transcript on Verizonmath.

Enter my favorite physicist/cartoonist, Randall Munroe, who wrote the above check to satirize the whole comical issue. It’s funny all right, especially in view of its genesis, but for how much was the check actually written? Well, based on my very rusty high school calculus, and meaning no disrespect to whomever produced the above explanation, I think it’s a check for essentially “nothing”:

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But not this year. And not because I wisely and purposely planned it that way.

Sure, I’ve always been pretty organized, at least when it comes to finances. I kept meticulous records in envelopes and on ledger sheets until the advent of financial software, and in Quicken since. With just a few mouse clicks, I could tell where every nickel had gone, when, and why.

As a result, planning for and paying our income taxes was usually a relatively painless experience. And by design, we always owed Uncle Sam around a hundred dollars, about the same for the good State of California. Occasionally, we’d accidentally get a small refund.

But something changed during the last few years and we’ve owed more than anticipated - way more - and I think I know why. It’s because I’ve become lax. I haven’t kept up with the necessary planning, analysis and adjustments. Maybe the so-called “marriage tax,” had some effect, I don’t know. Anyway, it’s become an unpleasant annual surprise, one I’ve deliberately avoided facing until the very last minute.

This tax season was no exception. I gathered my tax related receipts, printed out the relevant reports and delivered them to our accountant on April 14, expecting we would once again owe taxes. After a mild grimace (he’s become accustomed to my late arrivals), he promised to call me the following day with an estimate of just how much.

But, quite unexpectedly, we’ll be receiving a small check from the State and, even more surprisingly, a fairly decent Federal refund as well! Shazaam! And just when we desperately need to replace our refrigerator and aging computer! A pleasant surprise for a change. Couldn’t happen at a better time!

I suppose if there’s a lesson to be learned from all this, it’s that I need to regain my former state of financial order, recalculate our future withholding so as to owe just a few shekels each year, and deal with the unavoidable future paperwork much earlier. It always feels better when we’ve planned well and know exactly what to expect.

So that’s my commitment. Ask me next April how well we did.

An article in the current issue of Nutrition Action Healthletter (Dawn subscribes) offers this advise:

1. Find an exotic fruit, preferably from an ancient culture. Already taken: açai (pronounces ah-SIGH-ee) from Central and South America, goji (GO-jee) berry from China, and pomegranate from the Middle East and South Asia.

2. Turn it into juice, either straight or mixed with other (i.e., cheaper) fruit juices.

3. Attribute extraordinary healing powers to your juice. Already taken: açai is the “fountain of youth,” goji berry is “the most potent anti-aging solution on earth,” and pomegranate lets you “cheat death.”

4. Get Whole Foods to carry it and charge what the market will bear. Don’t be shy. Start with four or five times what regular juices go for.

What will your customers get for their money? An assortment of antioxidants and phytochemicals, just like they’d get from any fruit juice. But whether that makes the juices healthier is unclear. At least that’s the case with two of our three examples:

• Not a single published study has looked at whether people who drink it are any healthier than people who don’t.

• Pomegranate juice. In a small, preliminary study, UCLA researchers found that rising PSA levels slowed substantially in 38 of 46 men with prostate cancer who drank 8 oz. of pomegranate juice every day for three years. … But there’s a catch: The study didn’t include a placebo group, so there’s no way to know if the pomegranate juice was what slowed the rise in PSA levels. …

• Goji berry juice. Same as açai juice.

And what about blueberry juice, which is starting to show up on supermarket shelves? While blueberry extract seems to help rats find their way through mazes, it’s too early to say if blueberries—or their juice—can prevent memory loss in people.

Jim Cramer* listed his top 10 predictions for 2008 last week and seeking alpha reported on it, opining that some of Cramer’s forecasts seem more likely than others while a few appear to be wishful thinking:

1. Goldman Sachs (GS) makes more money than every other brokerage firm in New York combined and finishes the year at $300 a share. Not a prediction—an inevitability. In fact, it’s only January, and I think it’s already come true.

2. Oil goes much higher, maybe as much as $125 a barrel… We are running out of oil more quickly than people can imagine, and that means great returns for oil companies. Just buy the stock of the company you filled up at today or buy a driller (Transocean (RIG) is my favorite), then sit back and make money.

3. The Fed arranges an Arabic Heimlich maneuver on Citigroup (C), so the banking giant doesn’t choke on the worst mortgage portfolio in the country.

4. Verizon (VZ) becomes your cable provider.

   Cramer praised Verizon’s Fios, and predicted that the stock will be the best performing in the Dow Jones averages. Time Warner (TWX) and Comcast (CMCSA) will be hit hard, he adds.

5. Turning to private equity, Cramer predicted that Cerberus Capital Management will fail to resuscitate Chrysler (which he attributes partly on the choice of Bob Nardelli), and that Congress will agree to bail out the fund.

6. Cramer is bullish on Google (GOOG): Google stock reaches $1,000. The company becomes one of the top three companies in the U.S. in market capitalization… and successfully challenges Microsoft (MSFT) for operating-system dominance.

7. With the dollar weak, Cramer foresees European companies swooping in to buy up the likes of Merrill Lynch (MER), JPMorgan (JPM), Colgate (CL), Clorox (CLX), Whirlpool (WHR), and Black & Decker (BDK) which, he forecasts, will all see their stocks rise as a result.

8. Apple (AAPL), he predicts, will reach $300. He sees it successfully taking over the music business and, among other knock-on effects, he forewarns that Warner Music Group (WMG) will file for bankruptcy.

9. Turning to the media, Cramer posits that the cash-strapped New York Times (NYT) will accept a buy-out offer from Mayor Michael Bloomberg at $20 a share.

   Don’t be so quick to scoff: The cash is spare change for Bloomberg who, don’t forget, already owns a small media company. I’d say the $10 share price is even money. That’s how bad it is at the Times. The Bloomberg buyout is probably a 100-to-1 shot, but may be less if he decides not to run for president and needs something else to do this year.

10. Returning to his lament over governmental and Fed policies, Cramer predicts that the victims of foreclosure will lead a march on the White House and lay siege on the Fed. This, he says, will lead to Bernanke resigning, his replacement slashing rates, and the markets rebounding. As Cramer admits, this one’s a very very long shot.

    But if Bernanke or a future Fed chair does cut rates meaningfully, here’s a sure bet: That’s the time to start buying.

*Jim Cramer is an American television personality, former hedge fund manager, and best-selling author. In 2007, NewsBios.com named him one of the 100 most influential business journalists in the United States.

Unless you’ve been marooned on a desert island, you’ve probably noticed that the stock and bond markets have been somewhat volatile during the last several weeks, largely the result of concerns about “sub-prime” mortgages. We’ve all read or heard about them lately in the news, but what exactly are “sub-prime mortgages” and how did they lead us to where we are today?

Here’s the short (sort of) answer. Worldwide credit conditions have been relatively easy for the last five or six years, encouraging the creation of creative mortgage loans with unusually generous terms. Many of these loans were originated by startup mortgage companies owned by real estate agents and other industry insiders with potential conflicts of interest, and offered to home buyers with low incomes or poor credit histories. These loans were bundled together and sold to investment banks, leaving little incentive for the real-estate-agent-cum-mortgage-broker to enforce the lending standards typically associated with traditional banks. The investment banks then repackaged these loans into derivative securities with varying degrees of risk and resold them to investors whose appetites for higher yielding investments have grown substantially in recent years. As the homeowners began to default on their loans — their monthly payments often rising dramatically after an introductory period — the securities backed by these loans lost significant value, sparking broader concerns about the easy credit and ample liquidity that have fueled the waves of speculative investing we have witnessed in the last decade.

Somewhat troubling news indeed but, at least according to Sacramento investment firm Dalatri, Jenkins & Manginelli, the recent volatility is ultimately healthy for the markets, allowing them to work off pent-up excesses. They believe the equity markets remain in a long-term uptrend, supported by the expanding global economy and strong corporate earnings. They make a strong case for high quality investments with global exposure that have been under represented over the past six years.

What does all this mean for you and me? Well, I’m no investment guru but, if they’re right, we should be selectively adding high quality investments to our portfolios. Be aware of risks, of course, and remember the old adage: If it sounds too good to be true, it probably is. While high-grade, high quality investments may not always appear to offer the best returns, in the long run they usually do.