New Bubble, Same Old Frauds

Liz Moyer, 12.12.08, 03:50 PM EST

Enron and Worldcom, Madoff and Dreier. Is anyone really surprised?

Warren Buffett likes to say, "It's only when the tide goes out that you learn who's been swimming naked." The same can be said for slime.

This week alone there were two arrests of prominent New Yorkers alleged to be engaged in massive frauds and the arrest of a governor accused of trying to sell a U.S. Senate seat. And if history proves consistent, there will be many more shocking disclosures to come as the world readjusts to another post-bubble era.

It's nothing new. Excesses during bubble times lead to mistakes, big losses and ultimately the unveiling of frauds. Nobody asks questions when things are going well; they scream for justice when things head south.

Bernard Madoff, a well-respected denizen of Wall Street, faces charges he defrauded investors in his advisory firm of $50 billion by running what prosecutors say he admits was nothing more than a gigantic Ponzi scheme.

The alleged fraud unraveled when Madoff, who has run the business by himself for years, faced $7 billion in client redemption requests this fall. Ponzi schemes need asset inflows to work and break down when those inflows dry up.

Until now, nobody asked loudly enough, however, how it was that Madoff could log such steady and consistent positive returns (reportedly always positive for years even as the markets gyrated). His investment management firm, an affiliate of his market-making brokerage operation bearing his name, had $17 billion under management as of the beginning of 2008, according to the Securities and Exchange Commission, which is pursuing separate civil fraud charges.

Rival fund managers and some hedge fund due diligence firms said Friday they had wondered for years how he pulled it off, but few thought to sound alarms with regulators.

(CNN) -- A ballot initiative to ban gay marriage in California appears headed for a narrow defeat, exit polls showed.

Proposition Eight, which would eliminate the right of same-sex couples to marry in California, was losing -- 53 percent to 47 percent, according to the polling. If it were to pass, it would undo a state Supreme Court ruling in May legalizing same-sex unions.

The projections in California differed from Arizona, where voters approved a measure to amend the state constitution so that only a union between one man and one woman would be recognized as a marriage, CNN projected.

The measure passed by 56 percent in a reversal of direction from 2006, when a similar measure on the ballot failed.

Arizona, California and Florida were the only states to weigh constitutional amendments banning same-sex unions, down from 11 states in the 2004 election. Results are still pending in Florida.

The projected results were just some of the hot-button issues in an election where ballot measures were dominated by social issues from abortion and affirmative action to suicide and drug policy.

As of 1:30 a.m. ET, CNN had projected results on most major initiatives, based on actual results and exit poll data from key areas.

Fifty-seven percent of voters in Arkansas supported a measure to prohibit unmarried sexual partners from adopting children or from serving as foster parents. The measure specifies that the prohibition applies to both opposite-sex as well as same-sex couples.

Voters in Colorado rejected a measure defining a person to "include any human being from the moment of fertilization," which would have applied to sections of the Colorado Constitution that protect "natural and essential rights of persons."

Nebraska voters approved a measure to prohibit state governments from discriminating against or granting preferential treatment to people based on race, ethnicity, color, sex or national origin. Results on a similar measure in Colorado have not been announced.

Michigan chose to become the 13th state to legalize marijuana for medical purposes by a 64 percent margin. Massachusetts also had a proposed initiative to decriminalize penalties for possession of less than an ounce of marijuana.

Voters in Michigan also chose to amend the state constitution to permit human embryonic stem cell research with certain restrictions. The embryos, which must have been created for fertility treatment purposes, would have to have been discarded otherwise, and they may not be used more than 14 days after cell division has begun.

South Dakota rejected a proposal to prohibit abortions except in cases of rape or incest or where the mother's life or health is at risk. A similar measure that did not include exceptions for rape or the health of the mother was on the ballot in 2006, but voters rejected it 44 to 56 percent

Results are still pending for California's Proposition 4, which requires physicians to provide parental notification to guardians of minors at least 48 hours before performing an abortion.iReport.com: Watch Prop 8 debate in Utah

In Washington, 58 percent of voters supported a citizen initiative to allow adults with six months or less to live to request lethal medication prescribed by a physician. A physician is not required to comply, but anyone participating "in good faith" with the request would not risk criminal prosecution.

Many states also weighed budget-related proposals that could significantly affect how state revenues are generated.

In Massachusetts, voters have rejected a measure to cut the state personal income tax rate in half for 2009 and eliminate the state personal income tax starting in 2010. A similar ballot measure failed in 2002.

A citizen-initiated measure in North Dakota also proposed cutting personal income tax rates by half. Voters in Colorado and Minnesota were asked to consider increasing sales taxes. Oregon's Measure 59 would allow taxpayers to deduct the full amount of their federal income taxes on their state income tax returns.

Voters in eight states considered proposals related to gambling and lotteries, including Maryland, where current law prohibits the operation of commercial slot machines. Voters approved a constitutional amendment to authorize the use of video lottery terminals, or slot machines, at certain locations in the state, to fund public education.

Californians could face jail time if voters approve Proposition 2, which outlaws the confinement of pregnant pigs, calves raised for veal, and egg-laying hens "in a manner that does not allow them to turn around freely."