Posts filed under “Regulation”

Madoff Never Traded?

Alternative title: The End of Self-Regulation

A Boston Globe article today reveals that Madoff’s firms may never have traded — despite NASD/FINRA audits every 2 years since 1960.

“As investigators try to untangle the scheme that Bernard L. Madoff hid from investors and regulators for a decade or more, one basic fact is emerging: He may not have been making any trades at all.

A federal agency that regulates brokerage firms says there is no record of Madoff’s investment funds placing trades through his brokerage operation. That leaves only two options – either he was placing trades only through other firms, which would be highly unusual, or he was not placing any trades.

“There was no evidence of the Madoff broker-dealer executing trades for the [Madoff] investment adviser,” said Herb Perone, spokesman for the regulatory group, the Financial Industry Regulatory Authority. A broker-dealer is any firm that buys and sells securities.

FINRA and its predecessor, the National Association of Securities Dealers, has been examining the records of Madoff’s broker-dealer operation, Bernard L. Madoff Investment Securities, every two years since the firm started in 1960. The last exam was in 2007, Perone said…

If Madoff was making no real trades, the complicated statements he sent out to customers were apparently fiction – and in fact may have been part of his coverup. Statements were often so complicated that investors had to call representatives of the firm for explanations.”

So much for self-regulation. That a fraud this size took place right under the noses of NASD/FINRA is astounding.

The counter argument is that the money management side of Madoff’s operation was not covered by the NASD. The two firms were separate entities, different floors, etc. Even still, one has to marvel that anyone could answer “Not my job.”


Madoff might not have made any trades
Beth Healy
Boston Globe, January 15, 2009

Category: Legal, Markets, Regulation

No, Madoff Never Turned Down Money

Part of the story about the Madoff Ponzi scheme was that Madoff created this elusive, difficult-to-become-a-member club. The exclusivity and rejections made membership all the more desirable to greedy investors. That actually is turning out to be somewhat of a myth. There is much more to his canny trick of rejecting investors than initially meets…Read More

Category: Hedge Funds, Investing, Legal, Really, really bad calls, Regulation

Cumberland on Currencies; Gartman on Geithner; Kotok postscript on Geithner by David Kotok

January 14, 2009

David R. Kotok co-founded Cumberland Advisors in 1973 and has been its Chief Investment Officer since inception. He holds a B.S. in Economics from The Wharton School of the University of Pennsylvania, an M.S. in Organizational Dynamics from The School of Arts and Sciences at the University of Pennsylvania, and a Masters in Philosophy from the University of Pennsylvania. Mr. Kotok’s articles and financial market commentary have appeared in The New York Times, The Wall Street Journal, Barron’s, and other publications. He is a frequent contributor to CNBC programs. Mr. Kotok is also a member of the National Business Economics Issues Council (NBEIC), the National Association for Business Economics (NABE), the Philadelphia Council for Business Economics (PCBE), and the Philadelphia Financial Economists Group (PFEG).


What were formerly viewed as wild currency fluctuations are becoming more accepted in this post-Lehman failure period of the global financial crisis. Lately the strength has been in the yen. Many ask why?

We know that the economic situation in Japan is weak and the outlook is poor. We know that the Japanese exporters need a weaker yen not a stronger yen to help their business models. And we know that Japan has been mired in a deflationary recession for over a decade and the outlook for substantive reforms which would enable it to exit this quagmire seems to be elusive.

So why the yen and what will happen next?

We believe that the global mix of assets boils down to just four currencies. Most of the $85 trillion of bonded debt in the world is denominated in these four currencies: euro (30%), dollar (39%), pound (4%), and yen (13%). Most of the other currencies in the world (not all) are managed in one way or another or are tied directly to one of these four. Hong Kong, for example, runs its policy so that the Hong Kong dollar is fixed in a link to the US dollar. In Europe most of the non-euro countries in the European Union are managing their currencies in a narrow band so as to eventually gain entry into the euro system. Freer floating currencies like the Aussie, Kiwi, Krona or Loonie are important but are also relatively small portions of the globe’s total.

Let’s look at the big 4.

The dollar story is widely known. We have a huge developing federal deficit now measured in the trillions. And the Federal Reserve has rapidly expanded its balance sheet to more than triple the size of the pre-Lehman failure period. See for a graphic illustration of the Fed’s balance sheet. Remember that when the Fed enlarges its holdings of assets (loans in the “lender-of-last-resort” role) it is also expanding the liability side of the balance sheet (printing money electronically) in order to pay for those loans. Many conclude this will lead to a disastrous decline in the value of the dollar and a fierce inflation explosion. We are not as sure about this outcome as are the detractors; readers will see why below.

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Category: BP Cafe, Markets, Politics, Regulation

Too Big To Succeed . . .

If they are too big to fail, make them smaller.” -Nixon Treasury Secretary George Shultz about Fannie Mae and Freddie Mac > The operative expression about many of the bailouts we have seen — AIG, JP Morgan (via Bear Stearns), Goldman Sachs, Fannie/Freddie and of course Citibank — is “Too Big To Fail.” Perhaps the…Read More

Category: Bailouts, Corporate Management, Credit, M&A, Regulation

From Washington to Wall Street

What caused the financial turmoil of the past year? MarketWatch’s David Weidner lays some of the blame on the relationship between government officials and Wall Street.


Category: Bailouts, Corporate Management, Regulation, Video

The Madoff Whistleblower

Fascinating piece you may have overlooked this week in the Boston Globe on Harry Markopolos, the author of the detailed November 2005 memo to the SEC, identifying 29 red flags about Madoff and concluding he was a fraud. Excerpt: “A month ago, Harry Markopolos was an accountant unknown outside Boston’s financial community. Now the slight,…Read More

Category: Investing, Legal, Regulation

$700 Billion Dollar Attaboy

Today’s must read MSM piece is a brutal Bloomberg column, delineating why the Bailouts have been such a sweet deal for the banks. Despite the gross incompetence and sheer recklessness of Wall Street and the Financial sector, they were handed massive amounts of money with little in the way of returns to the taxpayer, no…Read More

Category: Bailouts, Corporate Management, Regulation

How Long til Madoff Losses Are Recovered ?

Earlier today, we looked at the NYT interactive graphic that calculates how long it will take to return to breakeven for typical portfolio losses. But what if you were one of 8000 Madoff investors, and your portfolio is now worth zero? For starters, you should get $500k from SIPIC. Then, there is the $830 million…Read More

Category: Investing, Legal, Markets, Regulation

Inside Look: Madoff Mayhem

Analysis and Discussion with University of Rochester President Joel Seligman, Also an SEC Historian

January 03, 2009

Featuring Interview with Former SEC Official Jacob Frenkel

January 02, 2009

Category: Legal, Regulation, Video

How to Repair a Broken Financial World

Here is another excerpt — part II — of the all consuming OpEd of the Sunday New York Times by Michael Lewis and David Einhorn: Excerpt: When Bear Stearns failed, the government induced JPMorgan Chase to buy it by offering a knockdown price and guaranteeing Bear Stearns’s shakiest assets. Bear Stearns bondholders were made whole…Read More

Category: Bailouts, Credit, Derivatives, Legal, Markets, Really, really bad calls, Regulation