"But it wasn’t just pierogies and pistol-packing wiseguys in purple suits."
Posted on 01/20/2009 12:48:09 AM PST by rvoitier
Bernard L. Madoff was once the chairman of the NASDAQ stock exchange. He was one of the most important market makers on Wall Street. And he managed what was, by some estimates, the largest hedge fund on the planet.
Bernard L. Madoff was once the chairman of the NASDAQ stock exchange. He was one of the most important market makers on Wall Street. And he managed what was, by some estimates, the largest hedge fund on the planet.
Yes, Bernard Madoff was an impressive man. That much was clear even before we learned that his $50 billion Ponzi scheme may have been orchestrated in cahoots with the most powerful, sophisticated, and indiscriminately murderous organized crime syndicate the world has ever known.
Charles Gasparino (citing “speculation” from investigators) reported last week on CNBC that the Russian Mafia might have been partners in Madoff’s larcenous fund business. Or perhaps the Mob had an even greater interest in Madoff’s market making operation, as some of our sources have told us in recent weeks.
Either way, there is a certain cachet.
But it wasn’t just pierogies and pistol-packing wiseguys in purple suits. Mr. Madoff was also a dedicated public servant, volunteering countless hours at the Securities and Exchange Commission.
Indeed, Madoff seems to have written many of the SEC’s rules. For example, Madoff was the principal author of an SEC rule that exempted market makers (i.e. Madoff) from various regulations governing short sellers (i.e. Madoff’s friends).
Madoff’s rule ensured that market makers (Madoff) could, among other things, engage in so-called “naked short selling.” To sell “naked” is to sell stock that one does not actually possess. That is “phantom stock,” according to the SEC Chairman and many others.
Sometimes, short sellers (who profit when shares lose value) offload massive amounts of phantom stock to drive down prices, destroy pubic companies, or even crash the market. That is why there used to be restrictions.
At any rate, I don’t think Madoff had an office at the SEC. He certainly was not employed there. But the SEC was glad to have Madoff write a rule exempting Madoff from the rules. The formal name of the rule is, “the option market maker exception to Rule 203(b)1,” but the SEC was so thankful that it named the rule after the great man himself.
It was called, “The Madoff Exception.”
After Madoff wrote that rule, market makers (e.g., Madoff) proceeded to “rent” their exemption to hedge funds (i.e. friends-of-Madoff).
It remained against the law for hedge funds to sell phantom stock to manipulate the markets. It was also against the law for market makers to help hedge funds orchestrate such schemes. But under the Madoff regulatory regime, unscrupulous short sellers (i.e. friends-of-Madoff) could engage in this illegal activity so long as they did so with the illegal connivance of a law-breaking market maker (i.e. Madoff).
A few months ago, this naked short selling was implicated–by numerous academics, the U.S. Chamber of Chamber of Commerce, the Secretary of the Treasury, the CEOs of Wall Street’s biggest banks, respected law firms, John McCain, Hillary Clinton, and numerous congressmen – in the near total collapse of the American financial system.
The SEC has not prosecuted anybody for this. After all, there is an “exception.”
It is unclear whether the SEC will continue to name this “exception” after a man who might have absconded with 50 billion dollars (a sum that exceeds the gross domestic product of Pakistan) in league with the Russian Mob, an organization that is said to be in the market for a nuclear bomb – in addition to narcotics, sex slaves and, yes, phantom stock.
In any case, the major news organizations seem to have lost interest.
“A few months ago, this naked short selling was implicated–by numerous academics, the U.S. Chamber of Chamber of Commerce, the Secretary of the Treasury, the CEOs of Wall Street’s biggest banks, respected law firms, John McCain, Hillary Clinton, and numerous congressmen”
yes...these are exactly the people we can trust on economic issues. /sarc
People need to learn to rely on their own judgment and not expect some magical SEC to come and save them with their magical regulations. The SEC is a bureaucracy and a bureaucracy will always be incompetent and ineffective.
Is this why Larry Flynt is looking for a bailout?
later....
"But it wasn’t just pierogies and pistol-packing wiseguys in purple suits."
It was called, “The Madoff Exception.”
Social Security
The final folly of FDR has yet to come home to roost...
The biggest Ponzi Scheme of all time and the largest fraud perpetrated on the American people in history, by the worst failure of a President we have ever seen.
Read Rothbard's book:
America's Great Depression
Free download
FDR was the architect of the Great Depression.
It lasted for 12 years.
It was solved by Hitler and Hirohito.
Madoff’s fund was never worth $50 Billion. He just SAID it was worth $50 Billion. It could never have been worth more than the sum total of what was ‘invested’ in it. And, it was always worth substantially less, since he spent the funds as soon as he got them. Just because he reported a growth to $50 Billion doesn’t make it that.
bttt
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