Wall Street Powerhouses Invested Alongside Madoff

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“Primex Trading’s Dark Pool Operations

There has been much debate among Wall Street veterans as to why major European investment banks suffered serious damage from the Bernard Madoff Ponzi scheme while our biggest U.S. investment banks escaped unscathed.

For the past two decades, Wall Street watchers could count on four U.S. firms to land in the middle of every securities scandal. From Nasdaq price fixing to fake research to rigging the IPO markets to peddling toxic subprime assets, one could rest assured that Citigroup’s Smith Barney, Morgan Stanley, Merrill Lynch and Goldman Sachs would be heading the lineup. Their complete absence from the greatest Ponzi scheme in history raises the question: what did they know and when did they know it?

The answer may reside in a pentagonal structure created in 1999 to serve the interests of a Wall Street cartel.

On September 14, 1999, it was officially announced that Citigroup’s Smith Barney, Morgan Stanley, Merrill Lynch and Goldman Sachs had partnered with Bernard Madoff to compete head on with the New York Stock Exchange in a venture called Primex Trading.

Madoff had bought the rights to a new technology called Financial Auction Network (FAN) created by Christopher Keith, a 17-year veteran of technology creation at the New York Stock Exchange (NYSE). Mr. Keith had retired from the NYSE and started a technology think tank in lower Manhattan in the early 1990s called Exchange Lab. FAN was one of the early technology offerings and the rights to develop it were bought by Madoff. The firm that emerged was Primex Trading, a division of Primex Holdings. (Primex Holdings holds two patents and may be part of those secret Madoff assets the court won’t release to the public.)

In addition to harnessing the brains of Mr. Keith from the New York Stock Exchange, Primex hired Glen Shipway, the Executive Vice President of the over the counter stock market, Nasdaq, whose duties had included market surveillance of broker dealers like this gang of five.

The partners made a big splash in the press at the time, extolling altruistic intentions of getting better prices for their customers in an electronic version of the New York Stock Exchange. Here’s an excerpt from the New York Times on September 19, 1999:

“Primex is aiming to be an electronic version of the New York Stock Exchange. Participants will not only be able to buy and sell stocks at prevailing market prices, as they now do through many traditional and electronic exchanges, but also interact openly with one another — in effect, bargain — to find the best prices possible. ‘I think the fact four of the world’s largest securities firms have backed this system suggests that it brings something new and unique to our ability to obtain the best execution for our customers,’ said Bill Hart, a managing director in equity trading at Salomon Smith Barney.”

In reality, a very different motive was at work. One of the best kept secrets from the public is a benign sounding process on Wall Street called internalization. That’s where broker dealers like Madoff’s Primex partners match their customers’ buy and sell orders in-house rather than sending them off to the New York Stock Exchange or some other transparent stock exchange. The entities that engage in this trading process are called dark pools. (Recall that “pools” were the same secretive creatures that rigged the stock market leading up to the crash of 1929.)

While the investing public was being served up visions of Primex creating a more transparent and fairer pricing market mechanism, the goal for Madoff’s partners was to legitimize the highly questionable trading practice of internalization….”

— Pam Martens at Counterpunch.

Pigs At The Trough

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What regret can you have? I have given you life –
Take the sharp end from a thorn and the edge from the knife,
The ache from the leg and the back, and never old age,
And from the enjoyment of sin remove me the wage,
Let me devour the surplus without any work,
Let every error of choice be an innocent quirk

I have given you life to enjoy all the beauty I make –
Let me use up what I have and undo the mistake,
Let me have health in abundance without any pain,
And if I abuse it permit me to have it again,
Let me have privilege, rank without any duty
Let me loot, pocket and steal without calling it booty

Let me throw craps for a living, come seven eleven,
Let me take chances and gamble my way into heaven,
Let me be good if good is the way to get in,
But if there’s no heaven there’s nothing as pleasing as sin,
Let me live, Master, this life, and live it forever,
Not as you are little piglet, and so I say ‘never’!

Not as you are little pig, as you grunt at the trough,
A windfall of apples I gave you, desist and be off!

“Not As You Are” –

Pavel Chichikov at Catholic Exchange.

Vandals At The Gate – Updated

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“We won’t cede an inch to squeegee men, turnstile jumpers, and graffiti vandals who breed a sense of disorder and lawlessness,” the mayor said.

That’s Mayor Rudi -er – Mike Bloomberg, according to this piece in the NY Daily News, announcing his plans to step up law enforcement against “quality of life criminals” in the city.  He’s going to go after the “dirty dozen” in this bunch, he says.

Brave lad.  That’s what I’m lying awake agonizing over.  Some one jumping a turnstile.

 A couple of hustlers with buckets and squeegees. That’s what’s rmenacing the republic and breeding unrest in the population.

(Meanwhile, says Alan Nairn, in an interview with Amy Goodman  on the appointment of the genocide-supporting Admiral Blair  (I posted it recently), “Mayor Bloomberg of New York just went to Israel and gave a press conference where he said that the international law of proportional response was stupid. He rejected it.”

It’s not lawless for a state to retaliate out of all proportion when the state is legally and morally in the wrong, but hustling for pennies on the street is a monstrous crime.

Please.

I don’t know about you, but this is what cast a pall over me when I rolled out of bed this morning:

1. What was the point of the last 4 years of my life writing and petitioning against the Iraq war, torture, and financial criminality?

2.  How come I have to prove myself on a job but no one in Washington or New York does?

3.  Is this country revving up for more war and if so, when, where, and for how long?

4. Why work and save? Just get a bail-out. 

5. Why the heck can’t I get Tor to work on my computer and anyway, aren’t they turning over stuff to the government?

6.  Why doesn’t this site (www.mindbodypolitic.com) show up on google searches but my wordpress blog does? [this site shows up on altavista and yahoo)

7. How do you make yourself invisible without getting the powers- that-be interested in you.

8.  What’s the use if the credit bubble crashed but the bubble in disinformation’s still going strong…

 9.  How soon before the government clamps down on the net and  confiscates gold… and should I even bother buying physical?

10. Where do you escape to? There’s no place to run from the kleptocracy….

You’ll notice that squeegee men didn’t figure once. Not even in a supporting role. 

The Madoff And Pony Show…

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“Each month, Madoff sent out elaborate statements of trades conducted by his broker-dealer. Last November, for example, he issued a statement to one investor showing he bought shares of Merck & Co Inc, Microsoft Corp, Exxon Mobil Corp and Amgen Inc among others.

It also showed transactions in Fidelity Investments’ Spartan Fund. But Fidelity, the world’s biggest mutual fund company, has no record of Madoff or his company making any investments in its funds.

DISCREPANCIES

“We are not aware of any investments by Madoff in our funds on behalf of his clients,” Fidelity spokeswoman Anne Crowley said in an e-mail to Reuters…”

Another “Mobs” Review On Seeking Alpha

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“I have a confession to make. Twice while reading the book Mobs, Messiahs, and Markets: Surviving the Public Spectacle in Finance and Politics, by William Bonner and Lila Rajiva, I felt a compelling need to refer to the first few pages and refresh my memory on when the book was published. For your information, it was published in the year 2007 (I believe in August) and well before the mega crisis and financial blowup of the second half 2008 unfolded. If not for anything else, then you have to read this book for its clairvoyance alone.The authors have been bang on target painting what was then a potentially scary scenario which ended up becoming one of the biggest blowups in the financial history of the world as it unfolded. They deserve credit for having faith in their contrarian doomsday vision when everyone else was going all out buying mortgage originator companies and expanding prop desks funded by banks’ leveraged books without any due regard for the inherent risks…..”

Atim Kabra on Seeking Alpha

Comment:

It’s nice to be complimented about abilities…even if you don’t have them! And I can’t say that a little green man popped out of the corner to tell me to do it, either.

Clairvoyant? Who would want to be….since the essence of playing Cassandra is you’re doomed not to be believed at the time it counts.

What’s more, we weren’t the only ones who predicted a credit crisis and global financial collapse.

I found out recently that economics professor and author Ravi Batra also did – only so frequently that by the time it actually came around, he’d moved out of the spotlight. (His doomsday books are 15 years old).

Austrian-oriented libertarians have been warning about an impending train-wreck for years. Seems like it didn’t get through to the mainstream press – which, of course, had every reason not to want it to come through…

But ours is the most wide-ranging analysis and we were certainly the first ones to get a best-selling book out about it. [I should correct that – one of the first ones….I see that Peter Schiff’s Crash Proof and Michael Panzner’s Financial Armageddon were out in April that year. So was Bookhaber’s  “industry insider” peek into hedge-fund risk management that I posted about earlier. But I didn’t get to read them and only skimmed Schiff’s and Bookhaber’s book after the publication of ours. And I still think ours was the most wide-ranging…and spookily timed – Mobs came out exactly as the first banks started collapsing.

And, even if I do accept credit only for doggedness, not prescience, it’s true that I’m mildly fey.  I sometimes feel I was led to this project by a series of events that go back to 2001…. by strange coincidences, uncanny repetitions, chance encounters where the past and the future were entangled. 

So, thanks for the thumbs up, Mr. Kabra – maybe I’ll pass it on to the green man.

Financial Follies: Eurozone Debt Near Unsustainable

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“In Portugal, one in every €8 of economic turnover goes overseas to settle its trade deficit. Rome owed 109% of Italy’s annualized GDP on the latest data.Today the Irish prime minister, Brian Cowen, warned trades union leaders that without public-sector pay cuts and job losses, he may seek a rescue by the International Monetary Fund (IMF).Dublin’s budget deficit is now running at 6.2% of Ireland’s annual economy, and the cost of credit-default swaps on its sovereign debt has now risen 7-fold since Sept.Default insurance on serial bankrupt.Mexico, in contrast, has fallen according to CMA Datavision.”

Adrian Ash at Bullion Vault

The comeuppance of the Euro was long overdue, which is why I’ve suspected that the short term prospects of the dollar are better than most give it credit for. In the mid-term, its prospects are 50-50.

In the long term, it’s down. But then, in the long-term, to paraphrase someone, all currencies are dead anyway.

Asia-Europe Shipping Rates Plunge to Zero

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“Idle ships are now stretched in rows outside Singapore’s harbour, creating an eerie silhouette like a vast naval fleet at anchor. Shipping experts note the number of vessels moving around seem unusually high in the water, indicating low cargoes.

It became difficult for the shippers to obtain routine letters of credit at the height of financial crisis over the autumn, causing goods to pile up at ports even though there was a willing buyer at the other end. Analysts say this problem has been resolved, but the shipping industry has since been swamped by the global trade contraction.

The World Bank caused shockwaves with a warning last month that global trade may decline this year for the first time since the Second World War. This appears increasingly certain with each new batch of data.

Mr de Trenck predicts Asian trade to the US will fall 7pc this year. To Europe he estimates a drop of 9pc – possibly 12pc. Trade flows grow 8pc in an average year. ”

Says Ambrose Evans-Pritchard at The Daily Telegraph, in a piece on the drop of Asia-Europe shipping rates to zero.

Boycott Israel

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“When I think of all the millions of dollars that people wasted on “change” I want to vomit.

Peace groups, don’t tell me to write or call these unspeakable political lowlifes. Start thinking up ways to disrupt their lives and the lives and fortunes of all the self-satisfied racists who make life hell for Palestinians.

Some suggestions:

1. Demonstrate in the Streets. Not just in front of the government buildings, but in front of Israel Bonds offices, El Al Airlines, the homes of members of Congress, and the businesses of people who give massive amounts of money to Israel. There’s a weekly picket of the Manhattan diamond store owned by Israeli settlement builder Leviev. In a city like New York there should be enough people to picket 9-5 every day it’s open. There are plenty more places to picket. In 2007 Donald Trump gave a quarter million dollars to the “Friends of the Israeli Defense Forces”. Why not demonstrate in front of his ailing Atlantic City casinos?

2. Buy a Keffiyeh. Wear a Keffiyeh. During the Holocaust the Nazis in many countries made Jews wear Jewish stars so that they could be singled out and humiliated or attacked.. According to the Yad Vashem institute in France many non-Jews won the Jewish star as an act of solidarity. According to legend the Danish King Christian X put on a Jewish star for the same reason.

Today our symbol of solidarity must the keffiyeh, the head scarf worn in different styles by Arab men and women. You could see it everywhere among the 15,000 who marched in New York City last week, a march of mostly Arab and Islamic people. It needs to be worn proudly by the “whites”, too. Wear it to work and see what conversations it starts.

3. Demand unions publicly sell their Israel Bonds. 1700 unions own Israel Bonds. Last September the head of the Retail, Wholesale and Department Store was honored at a dinner of the Israel Bonds National Labor Division where $40 million was raised for the bonds in one night. See him beaming at Hillary Clinton in a picture here. How many of the members of those 1700 unions have any notion that their leaders are buying these bonds with their dues or pension money?

It’s time to play hardball. The union movement is desperate to get a card check bill passed. Word is that Obama has already decided not to make it a top priority. So it’s going to be a fight. The last thing unions want is bad publicity in a dispute with human rights and Islamic groups about their owning bonds that support an apartheid state. I love unions and have been a union member for 40 years, but enough is enough.

4. Meet up with Muslims. Muslim people in the U.S. have been arrested, demonized and demoralized since 9/11. The horror of Gaza is making U.S. Muslims furious and they’re starting to get active in the streets. A good place to work with them is through the local chapter of CAIR, the Council on American Islamic Relations. www.cair.com

5. Boycott Israeli goods. I haven’t bought as much as a Hanukah candle from Israel in years. I won’t buy a computer made with an Intel processor because Intel has a huge factory in Israel on confiscated Palestinian land. Here’s one list of Israeli products and here’s another courtesy of a site urging you to buy Israeli goods!If you need more arguments see Naomi Klein’s recent article And if a boycott is to have any effect it has to be an active boycott. Ask store owners to remove offending goods and picket the stores that stubbornly trade in the “forbidden” goods. For tips google the Jewish anti-Nazi boycott of the 30’s.

6. Boycott Israeli personalities. Not everyone of course, not Israelis who will speak out against apartheid and war crimes. (There are some Arab countries which stupidly make it a crime to deal with any Israeli!) Obviously picket any Israeli political speaker. (Screw dialogue with them.) If your college works with Israeli institutions campaign to have it stopped. Try to keep the Israeli Philharmonic or Israeli athletes out of your city. No team would ever play against a South African team during the heyday of apartheid protests.

7. The corporate media sucks, but use it as much as possible. Write letters and op-eds. If they’re not published call the editors and bug them about denying equal time. Closely monitor what the editorial page and news page publish. If they don’t cover your protests call the news desk, call or email the publisher. Ask for meetings. The Israeli embassy does it all the time. Get all the coverage you can, but at the same time raise money for your own publicity.

8. Raise money, lots of money. You gave it to stonehearted politicians. Now give it to human rights groups. Rent billboards. Put ads on buses or in college newspapers, or on internet sites. Plaster signs on walls. Run 30 second spots on cable TV. If the stations object to running a “controversial political message” announce a run for political office. Legally they have to run ads by candidates!

9. Give money to Gaza. Eventually some of it will get through. Give to the UN via UNWRA.

10. Insist the national peace coalitions act together. We have UFPJ, ANSWER and the IA Center all calling their own demonstrations. The differences in their programs are less than the length of a gnats toenail. Press them to cooperate. Insist they have open planning meetings.

11. Start thinking of ways to boycott Egypt. Their dictator Mubarak is a full partner to war crimes. By international law people being massacred have a right to flee and become refugees. Mubarak’s troops maintain the Rafah-Egypt wall and shoot and Palestinians who try to break it down. Stay away from Egypt. You can see the pyramids some other time.

12. Think of new ways to put the heat on. Try them out and publicize them. Invent Wiki-Protest.”

Stanley Heller in Counterpunch.

Several Jewish women are at the forefront of protests here in the US, according to Amy Goodman’s Democracy Now. 

“Tens of thousands of people took to streets over the weekend in cities across the globe to demonstrate against Israel’s assault on Gaza. Some of the protests have been organized by Jewish groups who are speaking out against Israel’s actions. We speak with two Jewish women for peace: Dorothy Zellner, one of fifteen Jews who have signed a call for a protest in front of the Israeli consulate in New York, and Judy Rebick, who organized a sit-in comprised of Jewish Canadian women at the Israeli consulate in Toronto. “

Comment:

As a libertarian, I don’t think sanctions against a population, whether Palestinian or Israeli, are just.

But targeted boycotts are a different thing.

And the keffiyah idea is a good one.

Hitchens On Then And Now In Gaza

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“To read Benny Morris is to be quite able—and quite free—to doubt that there should ever have been an Israeli state to begin with. But to see Hamas at work is to resolve that whatever replaces or follows Zionism, it must not be the wasteland of Islamic theocracy.”

Christopher Hitchens in Slate.

Hitchens is always an interesting writer and the full article is worth reading….even if it is infuriating.