Category Archives: Kleptocracy

Wiki Fudges Importance of Naked Short-Selling

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(Continued from previous post)

Many people (including this blogger) see naked short-selling as one of the central rackets used by Wall Street’s racketeers to pull off their heists. It’s a view with quite a few supporters in the industry, government, and major media. But you wouldn’t know it from the wiki entry on naked short selling.

In a piece earlier this piece, urging sharper treatment of Geithner during his hearing, an off-shore journalist Lucy Komisar pointed out that naked short-selling of US Treasury bonds artificially depresses the price of the bonds by increasing the number of shares. It’s in effect a theft from the portfolios of ordinary people who hold them, unaware that their brokers are lending them out and leaving them only with electronic IOUs.
In other words, they’re lending to their broker, rather than to the US government….

In fact, the most prominent critic of naked short-selling, Patrick Byrne, has this to say on his blog, Deep Capture:

“Notwithstanding thousands of articles such as the ones cited above, the current Wikipedia article on naked short selling insists that experts believe that it is not a problem. No mention is made of hearings, statements by economists and SEC Chairmen, emergency federal actions and emergency meetings of regulators from the G-20 to stop the world financial system from imploding, etc. ……… notwithstanding the thousands of articles such as the ones I cited above, the current Wikipedia page maintains that the mass media agrees that naked short selling is not a problem…”

— “The Hijacking of Social Media”

Byrne’s site has a useful video by Judd Bagley on naked short-selling:

Byrne is the CEO of Overstock, an online retailer of surplus and returned goods, which, he claims has been the victim of naked short-selling for many years. At one point, around 30% of Overstock’s float (shares held by the public and not institutional investors or insiders) consisted of fails (shares that did not deliver at settlement of the trade) and although fails can have many causes, naked short-selling is certainly the most important of them.

Note: Byrne claims that this isn’t the principal motivation for his campaign against the practice and points to his other philanthropic initiatives as proof. Major media business reporters, including Joe Nocera and Gary Weiss, have argued otherwise.

Note: Bagley has been accused of cyberstalking Weiss over Weiss’s alleged complicity in the social engineering of wikipedia.

Update: Note also that several experts have contradicted Byrne’s assessment of the effects of naked short selling on the price of the stocks he’s analyzed.

Still, whether Byrne is a hero or an out-of-control conspiracist is beside the point.

With the scale of criminality on Wall Street now, you’d have to be a hero and out-of-control to go after any of it successfully.

And conspiracy-mongering seems to be largely in the eye of the beholder.

Byrne deserves credit.

Update: To be fair to Byrne’s critics here is a criticism by one Sam Antar (a reformed felon who now consults on white collar crime) of Overstock’s accounting practices.

To be fair to Byrne, Antar’s original fraud was extensive and involved his whole family. Antal also admits to profiting from short positions in the companies he criticizes for fraud.

Legislation to Oversee Fed Watered Down

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Ryan Grim at Huffington Post has a piece about the watering-down of legislation intended to give Congress greater oversight over the Federal Reserve.

He writes –

“On page five of Grassley’s amendment, he intends to give the Comptroller General of the Government Accountability Office power to audit “any action taken by the Board under…the third undesignated paragraph of section 13 of the Federal Reserve Act” — which would be almost everything that it has done on an emergency basis to address the financial crisis, encompassing its massive expansion of opaque buying and lending.

Handwritten into the margins, however, is the amendment that watered it down: “with respect to a single and specific partnership or corporation.” With that qualification, the Senate severely limited the scope of the oversight.

On the Senate floor, Grassley named the top Republican on the banking committee, Richard Shelby of Alabama, as the man pouring the water.”

In case you haven’t been keeping up, the Fed’s been lent much more than the $700 billion odd money of the original bail-out.  By January 2009, the figure had exceeded $2 trillion, as this video on the oversight problem indicates. Note that the number is now at least $3 trillion plus, according to the Special Inspector-General’s Report on TARP (SIGTARP).

.

My Comment

The HuffPo piece is just more confirmation of systemic rot, as delineated in this belated but useful Wall Street Journal report on the selling-out of America by Wall Street and Washington.

I only skimmed the report, but I notice that it seems to be blaming the whole mess on deregulation, pinpointing the late 1990s (and onward) as the culmination of  bad practices arising from what it calls without irony the “prevailing laissez-faire ideology of the Bush administration” – this, about the most interventionist administration in modern American history.  I like to take a nuanced position on regulation but this sticks in my craw.

Sounds like someone’s hustling the plebes away from the scene of the crime, clapping both hands over their eyes, just in case one of ’em catches a glimpse of the plates on the back of the get-away car –  FED1917*

For the WSJ it’s all about the late 1980s. It has nothing – repeat, nothing –  whatsoever to do with pre-New Deal policies…… nothing, I tell you.

No one’s defending junk-bond kings here, but that sounds a bit loaded to me.

Why am I getting the feeling that for a cynic the fun only begins now…

——————–

* i.e. the creation of the Federal Reserve itself

Paulson, Bernanke Caught Red-Handed in Fraud?

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From Casey Research:

“On April 23, 2009, New York Attorney General Andrew Cuomo sent a letter to Chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs Chris Dodd; Chairman of the House Financial Services Committee Barney Frank; SEC Chairwoman Mary Schapiro; and Chairwoman of the Congressional Oversight Panel Elizabeth Warren.

The letter outlined how former Treasury Secretary Paulson and Fed Chairman Ben Bernanke forced Bank of America’s acquisition of Merrill Lynch – even though Bank of America CEO Ken Lewis and the board of directors tried to pull the plug on the deal after it turned out that Merrill Lynch was far deeper in debt than it had admitted……….

…the part of the story that could really break Al Paulson and Don Bernanke’s necks is the failure to inform the Securities and Exchange Commission, as well as Bank of America’s shareholders, of the extent of toxic waste Bank of America was forced to accept. That’s fraud, pure and simple.“

My Comment:

The only problem is – who will bell the cat? Goldman Sachs’ reach is vast. And I doubt that Goldman is acting alone or purely out of its own interests,  although its own interests are no doubt paramount.

Think about it.

How was this bank’s reach and corruption not noticed before? Even Lisa Endlich’s very staid history of the firm in 1999 couldn’t conceal the slime.

So what gives?

The Gold Cartel’s End Game

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James Turk of Gold Money is afraid that the gold cartel (Goldman Sachs, Deutsche Bank, JP Morgan Chase, and to a lesser extent, Citi) may not go down so easily:

“The gold borrowed from central banks would not be repaid because obtaining the physical gold to repay these loans would cause the gold price to soar. So beginning this decade, the gold cartel would conduct the government’s managed retreat, allowing the gold price to move generally higher in the hope that, basically, people wouldn’t notice. Given its ‘canary in a coalmine’ function, a rising gold price creates demand for gold, and a rapidly rising gold price would worsen the marked-to-market losses of the gold cartel.

So the objective is to allow the gold price to rise around 15% p.a., while at the same time enable the cartel members to intervene in the gold market with implicit government backing in order to earn profits to offset the growing losses on its gold liabilities. Its trading strategy to accomplish this task is clear. The gold cartel reverse engineers the black-box trend-following trading models.

Just look at the losses taken by some of the major commodity trading managers on their gold trading over the last decade. It is hundreds of millions of dollars of client money lost, and gained for the gold cartel to help offset their losses from the gold carry-trade. All to make the dollar look good by keeping the gold price lower than it should be and would be if it were allowed to trade in a market unfettered by government intervention.

There are only two outcomes as I see it. Either the gold cartel will fail in the end, or the US government will have destroyed what remains of the free market in America. I hope it is the former, but the continuing flow of events from Washington, D.C. and the actions of policymakers suggest it could be the latter.”


My Comment:

This is my fear. I see a growth in public awareness. I see people writing and talking.  But at the top, the policies don’t reflect public opinion at all. That tells me the disconnect is complete. They don’t listen, because they don’t have to. They’re hearing their master’s masters’ voices.

Pete Peterson’s Not-So-Clean Crusade Against Entitlements

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Peter G. Peterson, the co-chairman of the private equity firm, The Blackstone Group, is also president of the  Concord Coalition , a bi-partisan group devoted to what it calls “fiscal responsibility,” which seems to be largely given to public advocacy of social security and medicare (entitlements) cuts.

I’m interested in Peterson, because of the way he keeps popping up into things.

First, as I noted in a blog post a couple of months back, he’s become the backer of the film, I.O.U.S.A., directed by Patrick Creadon, which is loosely based on the book, “Empire of Debt,” (Bonner & Wiggin, 2005).  I noted at the time the difference between the libertarian arguments of the book (which critiques the Federal Reserve) and the film’s noticeable silence on the Federal Reserve. In fact, the film spends a great deal of time on some of the very people who enabled the current debt crisis, including Alan Greenspan.

Second, I notice that Peterson has been using the film to argue that entitlement spending is out of control and needs to be cut back, etc. etc., an argument that progressive economist Dean Baker correctly calls morally bankrupt, given that this administration just bailed out some of the most irresponsible gamblers in the banking industry.

Third, I notice that Tim Geithner has given BlackRock three no-bid contracts to manage the Fed’s portfolio of troubled securities, according to a NY Times piece yesterday (April 27). BlackRock has close connections to Blackstone (where it was once the asset management division) and to the NY Fed.

That prompted me to do some digging around and I came across this interesting piece on Peterson, “A Crusader in Clover,” by John Hess at FAIR (Fairness and Accuracy in Reporting).

“While he is reticent about his [Peterson’s] income, Vanity Fair put his take-home in 1992 at $7 million, not an excessive sum for an investment banker of his rank. His partner Stephen Schwartzman, who is regarded in the financial press as the sparkplug of their firm, the Blackstone Group, said that year that investors in its venture fund should expect returns of 25 to 30 percent during the 1990s—again, not unreasonable, since the Dow Jones average rose more than 26 percent last year.

Such rates of return are, again, piquant, because Peterson has described the indexation of Social Security, which lately has raised benefits by roughly 3 percent a year, as “one of the greatest fiscal tragedies of American history.” Piquant? Wait. Peterson was at President Nixon’s side as his economic adviser and secretary of commerce when that “tragedy” was enacted in 1972. (Conservatives thought making the cost-of-living adjustment automatic would deter Congress from voting more generous benefits.)

Peterson denounces the “mad, drunken bash” of the Reagan years. That would be the time when the top income-tax rate was cut from 70 percent to 28 percent, military spending went sky-high, and trillions were made (and lost) on savings and loans and takeovers financed by junk bonds. He was himself, of course, making out like a bandit, hustling for his share of the action, and contributing his bit to Republican campaign funds. He also led a chorus of corporate executives who keened about the exploding federal deficit. His contribution was a key series of articles in the New York Review of Books in 1982 (12/2/82, 12/16/82) that prepared the intellectual climate for the 1983 Social Security “rescue,” which raised payroll taxes and lowered benefits.

The series purported to prove with mathematical certainty that the entitlements of the elderly were snatching food from babies and driving the nation toward bankruptcy. George Will called it “the most important journalism of 1982.” (Washington Post, 12/19/82). Its charts persuaded such liberals as Tom Wicker and Anthony Lewis. Leslie Stahl of ABC said Peterson “really began to educate me.” (She has since repaid the favor with appearances by her mentor on 60 Minutes.)

All the journalists he met seemed impressed by his expertise, and by his generosity in offering to surrender his own entitlements. It does not seem to have occurred to any of his interviewers that a rise of 1 percentage point in his income tax rate would cost him perhaps twice as much as his Social Security and Medicare benefits combined. Nor have any observed how policies he has supported have transferred the tax burden from the wealthy to the wage earner.

Indeed, in Facing Up, Peterson remarks with pleased surprise that nobody had clamored for a cut in the Social Security payroll tax to match cuts in benefits….”

NY Times Wises Up to Banking Cartel (Update)

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Finally. The New York Times is on the case.

(About a decade too late. But we’ll take an awakening whenever it comes and wherever, as we’ve said before).

At The Times, criticism of Tim Geithner’s insider status:

“A revolving door has long connected Wall Street and the New York Fed. Mr. Geithner’s predecessors, E. Gerald Corrigan and William J. McDonough, wound up as investment-bank executives. The current president, William C. Dudley, came from Goldman Sachs.

Mr. Geithner followed a different route. An expert in international finance, he served under both Clinton-era Treasury secretaries, Mr. Rubin and Lawrence H. Summers. He impressed them with his handling of foreign financial crises in the late 1990s before landing a top job at the International Monetary Fund.

When the New York Fed was looking for a new president, both former secretaries were advisers to the bank’s search committee and supported Mr. Geithner’s candidacy. Mr. Rubin’s seal of approval carried particular weight because he was by then a senior official at Citigroup.”

More at “Geithner, Member and Overseer of Finance Club,” Joe Becker and Gretchen Morgenson.

My Comment:

Here at The Mind-Body Politic, your diligent commentator makes it a point to cite people, even  if they don’t reciprocate, so we will note appreciatively that Ms. Morgenson did the leg work that outed Goldman Sachs for its presence at the AIG bail-out  (September 30, 2008). She deserves every credit for it.**

But that said, it still remains true that mainstream journalists today are moved less by the need to keep the public informed at the critical time than to bolster their reputations. That is really too bad and it’s why, increasingly, so many people disdain the press. Imagine doctors who watched the patient bleed and didn’t share information about his condition so they could “break” the case for themselves? What sort of professional ethic would that be?

Blogging and writing down intuitions as they occur is the only way of putting valuable information out into the public realm as fast as possible, so as many people can push back from as many angles as possible. That’s the only way to keep up the pressure on public officials.  I could not ethically hold back on my insights, just to avoid having other people take them without acknowledgment. You’d think better positioned journalists would act with equal public spirit, especially as they – unlike bloggers – are paid rather well to do so.

Writing critically about Tim Geithner in 2009, after the milk’s been spilled, and when it’s public knowledge is one thing. Much better for the Times to have written about Geithner a few years ago, when it counted.

This is precisely why the reputation  of the mainstream media among people who follow such things is a little below that of a loan officer at Fannie Mae.

Update:

Apparently, this piece provoked reaction elsewhere in the blogosphere, with Yves Smith at Naked Capitalism claiming that the piece is too kind to Geithner and Paul Kedrosky finding no smoking gun in all of it. Over at Portfolio.com, Ryan Avent sees it as evidence of  Geithner being much less of an establishment figure, much less timid, than people think.

My own sense is that Geithner is more of a scape-goat, a convenient prop to beat up on. It’s the figures behind him, Rubin, Summers, Volker, (and a few others whom I’ll post on later), who are the important players.

As a further aside:

Note this sidebar from The Times (September 28, 2008):

The Reckoning: A Spreading Virus: Articles in the series are exploring the causes of the financial crisis

In the last two years, NRR , The New York Times , and a few other places, have repeatedly used the word “reckoning” for the financial crisis, as well as a a few other terms. They sound strangely reminiscent of my co-author’s very popular newsletter, The Daily Reckoning – well known to DC and NY financial circles.  I’ve seen arguments from said missive (as well as from “Mobs”) lifted wholesale….

No one owns words or phrases or ideas. Or leads. There is no monopoly on them. And all writers are only too happy to have people read them, no matter what.

But political journalism is not simply any journalism. It plays a vital part in the creation and preservation of public memory. And that memory, that record, is essential to monitoring the state – which is the role of the fourth estate.  Journalistic ethics, which cannot be enforced in the courts alone, demands a degree of personal integrity to function as it should in creating and preserving that record.

With notable exceptions, this integrity is not much in supply any longer.

So, while stoning the banking cartel for its sins, let’s keep a few chunky pebbles for the media cartel.

Footnote:

**[I wrote a piece on AIG and Goldman Sachs the week before Morgenson’s piece. My piece was widely disseminated in the blogosphere (and to members of Congress, I learn from readers) and since Morgenson had never written critically about Goldman’s insider ties with AIG before, I have more than a suspicion she took the lead from that piece —  “Lipstick On An AIG” (Counterpunch, September 18-19, 2008)].

PS. I wrote both Morgenson and Jim Pinkerton (who mentioned Morgenson’s story on TV the following weekend), requesting correct attribution. There was no reply.

To the reader who writes to me that such imitation is a form of flattery, I wish….

It has nothing to do with flattery. It’s an attempt to co-opt language. It’s a way of muddying the waters. It’s revisionism. And its goal is to steer your mind the way that opinion-makers (who only voice choices within a carefully vetted spectrum) would have it go. Don’t be misled by the apparent opposition between the left and the corporate class. Communists and capitalists have always colluded when necessary. Certain kinds of capitalists (corporatists) love the state and they love communism — for you.

They know they’re always going to get the perks and privileges of the ruling class, while equality for everyone else makes for a pliable, governable body politic…

Bernanke and Paulson Pressured BOA-Merrill Merger

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More evidence of behind-the-scenes string-pulling in the banking crisis:

NEW YORK (Reuters) –

Bank of America Corp CEO Kenneth Lewis testified under oath that Federal Reserve Chairman Ben Bernanke and then-Treasury Secretary Henry Paulson pressured him to keep quiet about losses at Merrill Lynch & Co, which the bank was buying, the Wall Street Journal reported.

Testifying before New York Attorney General Andrew Cuomo in February, Lewis said “it wasn’t up to me” to reveal Merrill’s fourth-quarter losses as they were becoming apparent in December, the newspaper said, citing a deposition transcript.

Shareholders of Merrill and Bank of America voted to approve the merger on December 5, and the transaction closed on January 1. Bank of America subsequently reported that Merrill lost $15.84 billion in the fourth quarter.

At Bank of America’s April 29 annual meeting, shareholders will vote on whether to force Lewis to step down as chairman of the largest U.S. bank or leave its board, because of Merrill and a falling share price…”

Read more at Reuters

My Comment

Why do people think nationalization will improve matters?

We’ve nationalized already…. unofficially.

Making it official won’t improve anything. It will just get people to accept what’s going on and legitimize the swindle.

We’re like bystanders at a mugging fighting over who ought to get the money the mugger left behind when he fled.

No. See mugging, call cops.

That’s how it’s supposed to go.

Black Swans and Nationalization: More On Media Memes

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(This is the second half of the earlier post on Taleb cut and reposted here so as to be more readable)

As  I wrote in my earlier post, I agree with everything in Taleb’s list of “black swan proofing” the economy, except two points:

As I see it,

(1) This financial crisis had NOTHING to do with Black Swans (and Taleb himself says so elsewhere, so this piece confuses me).

(2) Nationalization (which he seems to be supporting here…and it may be he has a different understanding of what is involved)  is not the the right response, in my opinion.

A Black Swan refers to an unpredictable event. The financial crisis was predicted repeatedly, was completely foreseeable, and was indeed foreseen by Austrian theorists in writings throughout this century. 

The financial industry spin doctors (I’m not including Taleb in this group – but I think his writing may be put to that use) have been working overtime to associate this mess with the notion of “black swans,” hence the centrality given to accounts of the blow-up by industry insiders, who have acted as if it were something unforeseeable (Greenspan and others – I’ll find the links).

Why?

Saving face could be one reason. But considering the level of corruption and malfeasance that we’ve seen so far, it’s more likely that the angle is being worked as a diversion  from the obvious fact that the whole business seems at least partly engineered.

Equally important: by emphasizing the “unknown risk” angle, the industry also makes more control, regulation and centralization the natural option.

Do you see that?

Taleb is right about risk and Black Swans otherwise.

He’s a very smart guy and he certainly warned a lot about unknown risks and the foolishness of conventional wisdom.But he didn’t give the kind of detailed specific step-by-step account that Austrian economists, journalists, and theorists have done, not just in the last two years but for decades, predicting what would happen once the country went off the gold standard.

My own suspicions about Fannie and Freddie had nothing to do with risk or financial models. They arose from the clear and widespread evidence of fraud oozing in every direction from Goldman Sachs and the rest of the banking cartel, with Fannie and Freddie at the center. It didn’t need rocket science to see that. Just common sense and  the ability to see through jive talk. “Don’t dazzle me with bull shit,” as an acquaintance of mine used to say, making up for any lack of metaphoric aptness with dead-on accuracy about human nature.

I’m not knocking Taleb whom I greatly admire. I’m knocking what’s being pushed through his writing.

As I said in an earlier blog post, the whole establishment is for nationalization. The same fellows who drove the bus that just wrecked itself.

Why listen to them?

Stick your fingers into your ears – NO NATIONALIZATION

This is not about ideology. It’s about transparency.

Nationalization in a small, incorrupt, transparent state of Vermonters is one thing.

Nationalization in the American empire, circa 2009, is another. It’s cover for a power grab. The reason it’s being pushed so hurriedly is because something is unraveling and a few too many people are catching on.

Don’t take my word for it.

Ask yourself why one of the savviest investors, Warren Buffett, thinks that the banking industry is on the verge of tremendous profitability.

Buffett has a stake in the banks, of course. But is what he’s saying entirely about chatting up his investment?

Ask yourself why Nouriel Rubini first advocated nationalization as though it were diametrically opposed to the position (private-public partnership) held by Larry Summers and Tim Geithner.

Ask why he didn’t let the public know he was in business with Summers .

Ask why it is that since that business connection was revealed,  Roubini has now started saying that “nationalization” can proceed even with “private-public partnership”?

[Note: Roubini’s warning about the economic crash, made in September, 2006 to the IMF doesn’t seem to be available on the IMF site and any links I found on the web didn’t work. The closest I got to the actual speech was a reference at the IMF website in September 2007 to the 2006 speech.

Here’s an extended bio of Rubini at the IMF site that mentions the 2006 speech, but again there are no links.

Rubini’s own site has a link to his September 2007 speech which warns of a hard landing but no 2006 link.

On wiki, as well, there are no links to any 2006 predictions although there is a NY Times interview with Roubini from Sept. 2006 about the housing bubble, where he anticipates a housing bubble burst, with prices down 5-10% in a year in New York and perhaps 20-30% nationally. Honestly, in September 2006, everyone was saying that. Yours truly is on record calling the peak of the housing bubble in July 2005, as you can check from this website. And was much more detailed about it too. And I’m not an economist in the heart of the global financial order like Roubini.

Bottom line, except for this 2006 piece, which is very narrow in scope, limited to the housing bubble and quite modest in its predictions, there really is no other prediction of apocalypse I could find from2006 that would qualify Roubini for the title Dr. Doom, a title that more appropriately belongs to the Asia-based fund manager and commodities guru, Marc Faber, who is an Austrian and who was far more prescient and detailed in his warnings. Again, you have to wonder if the “Doom” moniker wasn’t intentionally applied to Roubini to coopt the libertarian Faber’s argument into the statist Roubini’s policy prescriptions.

Roubini’s cv also rings some alarm bells for me. His thesis adviser was Jeffrey Sachs and Roubini still admires him the most of all his colleagues; he’s worked closely with Larry Summers; he’s been on Clinton’s advisory team at Treasury; he was involved in the Asian crisis; he’s worked in a number of positions at the IMF (which is being pushed as the new global central bank). Now he’s been brought in as “Dr. Doom” (effectively co-opting bearish commentary on the market) and he’s pushing nationalizatio,n like every other establishment figure.

This is not a confidence-builder.

To return to my caveat: why set up nationalization and PPP as as an either/or alternative if they can work as complements?

Either/or is the binary switch which propagandists use to turn individuals into mobs. Scare the public and tell them, either you do this…OR you suffer that.

Either/or provokes people into instinctive responses. It makes them scared or angry. It forces them into flight (panic) or fight (anger).

It’s us or them.

We’re seeing all that now. Some very clever people are pushing those two buttons over and over.

This is one of those snakes and ladders games where you move left, and a green snake swallows you and you’re back on square one.

So you move right and a ladder takes you up four rows and then a green snake swallows you and you’re back on square one.

Solution? Stay where you are and let the snakes sort it out for themselves.

Instead of rooting around for fixes for the problem, we should be investigating the chicanery that led to it, and finding out legal ways to undo or challenge the legislation that gave us TARP etc.

Bernie’s Web: Who Dunnit & Where’s the Dough

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There have been some interesting developments in the Madoff business recently, all of which have confirmed my early insight that the Madoff fraud was much more than a solo effort.

[In my opinion, it is likely an international criminal conspiracy tied to the financial crisis. You can reference my Madoff posts through the search function and also through my last three articles at Lew Rockwell which indirectly address the issue].

The Madoff business is why I’ve come down squarely against nationalization. It’s not because of ideology. Or pig-headedness.  Or from a desire to pander to the neanderthal crowd (is there any other kind?)….

It’s because as long as the ties between all these corrupt financial deals and dealers are not clear, any move made by the government is guaranteed to set precedents that will in the long run be against the public interest. To all the libertarians who will rush to tell me there is no such thing as the “public interest”  but only the “aggregated individual interests of many people” – yes, of course, but we’ll do the abstract cud-chewing at another time.  What I mean is that public money (tax money) will go to private interests.

Which is why unraveling the Madoff -banking cartel story is the most needful thing right now.

Here are some recent developments.

(1) Talking Points Memo, January 4

If the Feds ever get around to realizing Bernie’s brother and thirty-year business partner, Peter B. Madoff, was in on the scam, they might want to take look at his holdings.

Craig Kugel, a long time Madoff employee, is involved in Essex Realty Development LLC, registered in NYS on 12/10/07 to an address at 34 Pheasant Run, Old Westbury. 34 Pheasant Run is one of Peter Madoff’s primary residences along with a W. 53rd St apartment and a Palm Beach house.

While much has been made of Ruth Madoff, Bernie’s wife, being sole owner of her Palm Beach estate, no one has said anything about Peter and Marion Madoff transferring ownership of their Palm Beach property solely to Marion in 11/06 which is probably when the Madoffs got serious about giving it up.”

and

“David Kugel, I believe, is Craig’s father. They both live in the same North Shore neighborhood on Long Island and they may be related to the Madoffs.

Madoff Technologies, L.L.C. was registered in NYS in 10/98 in care of Craig Kugel at 885 Third Ave.

In 2003, Craig Kugel was identified in another Trader Magazine photo as being with Primex Trading. Primex was registered as Primex Holdings, L.L.C. in NYS in 10/98. Primex is a joint venture between Bernard L. Madoff Investment Securities, Goldman Sachs and other brokerage firms and involves a digital trading auction which operates out of Bernie’s 18th floor office at 885 Third Ave.

(2) The New York Daily News, March 12:

“The timing of her [Ruth Madoff’s] $15.5 million in withdrawals – as he was becoming aware of his problems, and then on the day before his arrest – is very suspect,” Massachusetts Secretary of State William Galvin told the Daily News. Galvin, the top securities regulator in the state, calls Cohmad a feeder fund in Bernie Madoff’s empire. Representatives for Cohmad didn’t return calls. Galvin ridiculed Bernie Madoff’s claim of having executed the complex, decades-long global banditry alone. “There are only two questions that exist right now: Where’s the money? And was there anybody else involved?”

Ruth Madoff has not been accused of wrongdoing. Still, she has fueled outrage by trying to claim a $69 million personal fortune unconnected to her husband’s booty, which will be subject to court-ordered forfeitures….”

(4) Talking Points Memo, April 8

[Steve ] Labaton [of the New York Times] understates the NSX case. According to a 5/19/2005 SEC  administrative ruling, NSX openly and flagrantly violated SEC regulations year in and year out for more than six years. As a result, NSX brokers made untold millions cheating their customers.

NSX encouraged the cheating by failing to enforce “compliance by its dealer firms (known as “designated dealers”) with two important provisions of its rules: the market order exposure (“MOE”) rule and the customer priority (or trading ahead) rule”.

On top of trading violations, NSX destroyed email correspondence that was supposed to be retained for five years.

What punishment did Eric Swanson “aggressively” mete out to NSX for cheating customers and destroying evidence?  NSX was required to set aside a million dollar reserve for an independent audit and David Colker, NSX CEO, was censured. A slap on the wrist.

As an aside, anyone who claims the Madoffs operated the brokerage side of the business honestly is full of crap. Bernie and Peter knew NSX was violating SEC regulations and they profited from those violations. Destruction of email correspondence is right up the Madoff alley, too, as we now know.

Peter and Bernie were certainly closely associated with NSX. In January 2004, NSX sponsored a Swiss ski trip for the Madoffs and a dozen of their friends and business associates……..

Labaton again understates the case. Peter Madoff was a member of the A.G. Edwards board of directors. A. G. Edwards is headquartered in St, Louis and, outside of New York, Missouri is the only other state where Bernard L. Madoff Investment Securities LLC is registered.

Shana Madoff wasn’t on the compliance committee of just any old industry group. She was appointed to the NASD Market Regulation Commitee in 2003..”

(4) The New York Daily News, April 18:

“Hedge-fund founder Ezra Merkin was warned years ago that Bernie Madoff wasn’t on the level but still invested and lost tens of millions in his Ponzi scheme, it was charged in court papers unsealed Friday. Among the documents were e-mails from former Merkin employee Victor Teicher who said he told Merkin several times in the early 1990s that Madoff’s consistently high profits weren’t possible year after year.  The claimed profits “were inconsistent with what could possibly take place in reality,” he said. Teicher, a former financial analyst and convicted felon, also said Merkin’s former accountant Andrew Gordon reported that Madoff’s investment scheme “looked like a fraud to him.”

Freddie Mac CFO dead…(Updated 9:13 PM)

Posted on by

“The acting chief financial officer of mortgage financier Freddie Mac, David Kellermann, was found dead this morning, police said. Police are investigating the death as an apparent suicide…”

More here

ABC reports (http://abcnews.go.com/Business/story?id=7399376&page=1) that Kellerman was found hanging in his basement.

Notable point in the piece:

“Prior to this role, he served as senior vice president, corporate controller and principal accounting officer. ….Before that, Kellermann served as the senior vice president and business area controller. As business area controller, he led the organization responsible for all accounting and finance for Freddie Mac’s lines of business. Kellermann has been with Freddie Mac for more than 16 years….”

In short, he was the guy in charge of Freddie’s books.

He also got a bonus recently, for $800,000 (about $170,000 paid and with the rest to come).

My Comment

I’ll post anything pertinent as it comes up.

Meanwhile, here are the other deaths/suicides related one way or other to the financial crisis:

Thierry Magon de la Villehuchet, aristocratic French CEO of  Access International Advisors, a money management firm that placed investors in Madoff vehicles. He was stabbed multiples times in the arms and wrists, apparently with a box-cutter, after taking sleeping pills. (December 22, 2008)

Adolf Merckle, German billionaire head of VEM, a corporate empire that included Ratiopharma, the leading European pharmaceutical producer, Cement Heidelberg, one of the world’s leading building materials suppliers, and 120 other companies. Lay down in front of a speeding train near his house in Blaubeuren village not far from the French-Swiss border.(January 5, 2009)

Update: Steven L. Good, the CEO of  Sheldon Good & Co., the largest real estate auction in the country, found dead from a bullet to the head, at the wheel of his Jaguar in a Kane County wildlife preserve outside Chicago, who had commented on the challenging state of the country’s commercial real estate market the previous month.  (January 6, 2009) [I came across this suicide only today and added it at roughly 9 PM April 22] Update: Patrick Rocca, an Irish property investor worth several hundred million who shot himself in the head after losing a large sum in Anglo-Irish bank, which was nationalized by the British government the week before his death  (January 22, 2009)

William Foxton, retired British army major-general who served in the French foreign legion and then in the Balkans in the 1990s on the European Commission Monitoring Mission and as a spokesman for the Organization for Security and Cooperation in Europe. Died from a single bullet to the head in Southampton after reportedly losing all his money (six figures) in Madoff hedge funds. (February 14, 2009).

Huffington Post has an article about what it describes as the increasing levels of suicide related to the financial crisis. It names several less well-known money-managers or home owners who’ve taken their lives as a result of anxiety over finances.

However, this Columbia Journalism Review piece correctly cautions against drawing any conclusions about rising suicide rates and financial crises, noting that the image of ruined financiers throwing themselves out of windows during the crash of 1929 is strictly an urban legend. J.K. Galbraith, the best-known chronicler of the 1929 crash, points that out too.  The CJR piece is also useful in warning against the dangers of copy-cat suicides/killings resulting from the irresponsible linking of deaths/killings/suicides to particular financial events.

(This is one of the reasons I’ve been wary of writing about farmer suicides in India. You would need a very detailed analysis of the statistical picture and demographics of the area to reach any broad conclusion about the suicides).

Update April 23,

I see that Vanity Fair has posted a piece on financial suicides at 4:52 PM April 22, an updated version of an older list.

Briefly, it includes the following:

October 23, 2007
Raymond and Deanna Donaca, of Portland, Oregon; Retired contractor for the U.S. Forest Service (Raymond)
Carbon-monoxide poisoning.

October 24, 2007
James Hahn,  Houston, Texas, Chemist.
Gun shot

November 26, 2007
Rae Cowan,  Toronto, Ontario. Nranch manager at IPC Investment Corp., and he also ran Gibraltar Wealth Management Corp.
Carbon-monoxide poisoning.

January 18, 2008
Walter Buczynski of New Jersey; Vice president, Fieldstone Mortgage.
Jumped from the Delaware Memorial Bridge after killing his wife.

March 5, 2008
Roland Gore of Ocala, Florida
Killed his wife and dog, set his house (in foreclosure) on fire and then took his life

March 10, 2008
Rufus Shaw and Lynn Flint Shaw of Dallas, Texas.
Writer (Rufus); former chairwoman of the Dallas Area Rapid Transit board (Lynn)

Rufus shot Lynn and then took his own life

April 11, 2008
Maurice and Natacha Pereira, Four Corners, Florida.
Gun.

May 23, 2008
Barry Fox of Fort Lee, New Jersey.
Research supervisor, Bear Stearns.
Fox ingested a cocktail of drugs before jumping from his 29th-floor apartment.

June 2, 2008

Scott Coles of Phoenix, Arizona.
C.E.O., Mortgages, Ltd, one of the largest private mortgage lenders in Arizona
Drug overdose

July 15, 2008
Ed Boesen of Davenport, Iowa.
Co-owner of the florist chain Boesen.
Drug overdose—Tylenol.