A film by Francis Bush Obama

STARRING!

The SEC as “Luca Brasi”  * Kenneth Lewis as “Carlo Rizzi” * Hank Paulson as “Sonny Corleone” *

Timothy Geitner as “Michael Corleone”   * Barney Frank as “Tom Hagen”

And introducing in his first starring role!

Ben Bernanke as “Don Corleone”

The most awaited financial movie in History is finally here! Join us as we chronicle the struggle of a group of young banksters as they work their way up the financial tree and eventually become the most powerful gang of banksters in the world. But the rise to the top is not easy and staying there is even harder… (more…)

Wasting Away Again In Regulatorville…

Another day, another new Regulator or Czar appointed by the government.  The latest creation is the new and improved super regulator that will over see the SEC and FINRA as well as the institutions themselves.  Before we get into this latest and greatest Regulatory overhaul, I think is important to take a trip down memory lane. Let’s start with November 2006 when the folks at the NYSE and NASD Regulatory arms decided to merge into one Single super regulator known as FINRA… (more…)

True economic recovery or a dead cat bounce hangs in the balance

With each passing day we read and hear about the vital signs of the economy like it was a patient at a hospital on life support. Every little sign of improvement seems to be accompanied by pundit’s proclamations that the worst is behind us. Even bearish commentators like me have admitted to seeing signs of life that the economy is improving and that capital formation appears to be gaining some legs. Are we to believe that this 2000 point rally in the market as well as surging oil prices is a sign the recession is over? Well, take a deep breath and brace yourself for what I’m about to say… (more…)

The video linked below is from Bill Moyer’s excellent reporting for the Public Broadcasting System. It is also carried on Bill Moyer’s site “Bill Moyers Journal” (  http://www.pbs.org/moyers/journal/index-flash.html ). This is investigatory journalism at it’s best – seldom seen anymore in a world of shills and corporate captured media -an interview with a star in the field, exposing massive systemic fraud – and the whys and hows that these individuals got away with the largest financial fraud in history – and continue to maintain their fraudulent activity today - and why it is very unlikely to stop anytime soon, particularly in this administration. Kudos Bill and William, for a job well done. If only everyone in America would watch your video and give themselves the gift of understanding. Here goes: From Bill Moyers Journal:

The financial industry brought the economy to its knees, but how did they get away with it?  With the nation wondering how to hold the bankers accountable, Bill Moyers sits down with William K. Black, the former senior regulator who cracked down on banks during the savings and loan crisis of the 1980s. Black offers his analysis of what went wrong and his critique of the bailout. The Video Interview:

Today the Treasury Secretary began outlining his vision of a new Regulatory structure to replace the old one. This new system will save us all from another catastrophic meltdown in our financial system and make sure corruption and greed is caught early on. The SIPA response? Yadee Yadee Yadee…

With all due respect, why create a new broke system when we can enjoy the fruits of our old broke system? All the rules in the world are wonderful and make politicians and regulators alike feel like they re protecting investors but at the end of the day  if NOBODY enforces them what’s the difference?

Lets take a step back to our past to see why a ‘New” regulatory system is a waste of time unless there is fundamental changes in the mind set. Years ago I worked in operations for a wire house and would remember Brokers and correspondents running to the back office at 2:05 pm begging to get their mutual fund purchase/sale in. At this firm we required all Mutual fund tickets be in OPERATIONS HANDS by 2:00 pm eastern. Some where around 2003 the after hours mutual fund scandal broke due to the efforts of Elliot Spitzer (not a securities regulator). Billions and Billions were made by firms running tickets at 6, 7, sometimes 10:00 pm. The market closes at 4:00 pm yet for some reason, not one Securities regulator had a problem with a Mutual fund ticket time stamped at 8:00 pm? Since when is 4:00 not 4:00? This illegal and fraudulent behavior occurred for 10+ years yet we had to rely on Spitzer to out it.

Let’s look at the research scandals that also plagued Wall Street. I remember working Compliance and handing out the restricted list of securities the firm was involved with. We would prohibit any buy or sale until the updated recommendation was published. Yet for many years some of the larger firms on the street were putting out fraudulent reports about liking certain stocks while at the same time unloading their positions. They did this for many years yet once again it was the Attorney General who found the crimes. Think about some of the other scams and scandals that plague Wall Street and then ask your self if a new regulatory system would solve the apathy regulators tend to carry toward the elite Wall Street firms.

Now think about this: Lehman brothers , Bear Stearns and several other elite firms were so over weighted down with CDO’s and other toxic assets, yet no securities regulator ever questioned their risk management, their FOCUS reports or anything else. Once again, I draw upon my own previous experience when my examiner let me know during an audit that the firm currently had 12% of its total holdings in ABC stock. They informed me of the potential risk and we began restricting the stock and lowered our exposure. However, for some reason this same regulator sent employees into Lehman, Bear, Goldman and Merrill and saw absolutely no risk with holding billions in toxic assets or did they see the risk and just refused to say something?

Naked shorting of stock then cannot be readily borrowed has always been illegal, yet it wasn’t until last summer when the largest firms on Wall Street were being crushed by shorters that the SEC finally jumped in to enforce Short sale rules. Our Government is not without fault either in this mindset. For instance, the SEC took over Sanford Financial as well as several other small firms and hedge funds in the past year. A receiver was immediately appointed to oversee the day to day operations. Our government announces that AIG is broke and puts hundreds of Billions into the company but didn’t send a receiver be appointed? So now the Government wants to talk tough and take a 90% tax out of greedy bonuses that were given with the Fed Chairman’s consent?

At the end of the day it’s obvious that selective regulation does not work. Yet we have seen no indication of that mind set changing anytime soon. In fact, we fear the scandals can get worse then ever before for one simple reason: The large Elite firms now have ‘can’t fail status” due to tax payer money totaling 2 trillion and counting. Do you really think the Wall Street elite is now concerned that if they screw over investors with bad prints, bad research and inside information that it will have any effect on them? Chew on this for a moment: how are you going to levy a huge fine for future fraudulent behavior of you already have trillions invested in them? Imagine a fine of 100 Million for bad acts against Merrill for some atrocity all the while knowing they have a line of credit with the government and if they did pay, it would delay repayment of the TARP money. A new Regulatory overhaul will change what? Nothing.

I’m gonna start by saying that I am totally outraged the Bernie Madoff gets to go straight to jail without a long tedious exposure at trial, and I think it stinks to high heaven.

And I’ve had a real difficulty understanding why auditor after auditor found nothing awry at Madoff, when a 7th grader would have got it. And why the SEC refused to look into it, when presented with the hard evidence on multiple occaisions.

One can imagine that it could have been human fallibility; simple incompetence… Or even maybe a series of unfortunate coincidences… Occurring repeatedly, spanning more than a decade… Like a coin toss landing not on heads or tails – but on it’s edge… Ten times in a row…

But my mind rejects that as a possibility. My mind – simple and lacking grace – is a trader’s mind. Probabilities, odds, game theory, percentages  – are what bubble up in my head. I’m no genius, wish I were. All the same this simple mind understands that it is unlikely to see a coin land on it’s edge. Let alone four, five times in a row. Unlikelier still 8 times in a row. Experience and Natural Law informs that when one witnesses results like those, the game is likely rigged, the results are likely corrupt.

But what possible reason could there be for corruption to occur and then to continue and to actually expand in the Madoff case? Conspiracy theories are great entertainment, but we cannot rely up anything until it becomes 8 1/2 by 11…

And so I posit for your reading entertainment, an 8 1/2 by 11  potential clue to the mess. This “Clue” is in all probability noise, not signal – but then again, it is probably as likely as flipping an edge ten times in a row. Probably a lot more likely…

I recently saw an ad for the position of “Investment Associate” for the FINRA’s (estimated) $1.5 billion warchest. What was not readily apparent to me, but was pointed out by my associate is that the ad contained a job description; the investment methodology expected to be employed.

The Investment methodology would employ a significant allocation in “Alternative Investment Vehicles”. The percentage of the desired allocation in “Alternative Investments” was substantial, at 45%…

“The Investment Associate provides support for investment related work in private and marketable alternative investments for FINRA’s endowment portfolio. Alternative investments are targeted to be 45% of total endowment assets. The Investment Associate will work closely with the Director of Alternative Investments as it relates to private equity and real assets and the  Director of Marketable Alternative Investments as it relates to certain marketable alternative investments (hedge funds). ”

In fact, a review of the public record does indeed show a very significant investment by the FINRA in hedge funds… But it does not go so far as to say which …

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Simply put: Could it have been Madoff?

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And if so, if the NASD had put a large number of eggs in the Madoff Basket  – could that have influenced the regulatory oversight?

Could the NASD, potentially skewered and hamstrung by Madoff – have not been physically able to extract the necessary funds to make a pay-out of more than $35,000 to members as part of the merger?

Was the FINRA’s alleged fraudulent misrepresentation that the $35,000 was “non-negotiable”, and the claim that the amount was allegedly “determined by the IRS as the Maximum Amount Possible” predicated by and based on the “reality” that they really did only have enough cash to do $35,000 – because they were up to their eyeballs in Madoff’s fraud?

And if the FINRA was indeed a Madoff Victim, wouldn’t they have been in a conundrum… Pull out funds and they would be front running the public. Bust the scam and they might lose that money forever… As well as have some serious egg on their faces. Whoa!

Okay, this is purest speculation; salacious entertainment value for feeble minds like my own.

But dear reader, my simple mind has a simple question: Where do YOU put the odds?

In what is a sign of the times, Rolling Stone Magazine has published an article by Matt Taibbi chronicling the regulatory failures and misteps that allowed for the largest financial crisis in history develop. What is sad is that this article is great, gut punching investigative reporting – the kind of reporting that the Bob Woodwards of this world will no longer touch because it might offend the interests of their corporate masters. So the investigative “hats off” of the day goes to Mr Taibbi, and to Rolling Stone Magazine, Outstanding Financial News Publication.

For Matt Taibbi’s complete report, “The Big Takeover,” check out Issue 1075 of Rolling Stone.
http://www.rollingstone.com/issue1075. 

By the way, the article below talks about the very same issues that the SIPA has been whining about for months. It is nice to have some independent coverage of those issues in the popular media - we know from experience that the Major Financial Publishers refuse to cover those important issues. Such is the state of jurnalistic integrity today. So go out and buy a subscription to the Rolling Stone Magazine; great writing like this needs to be encouraged. Article is available at the Rolling Stones Magazine website here: (http://www.rollingstone.com/politics/story/26793903/the_big_takeover/print )   

Here is the Article: (Warning – Strong Language; Curse Word Alert!!_)

The Big Takeover

The global economic crisis isn’t about money – it’s about power. How Wall Street insiders are using the bailout to stage a revolution

MATT TAIBBI
Rolling Stone Magazine (http://www.rollingstone.com)
Posted Mar 19, 2009 12:49 PM

It’s over – we’re officially, royally fucked. No empire can survive being rendered a permanent laughingstock, which is what happened as of a few weeks ago, when the buffoons who have been running things in this country finally went one step too far. It happened when Treasury Secretary Timothy Geithner was forced to admit that he was once again going to have to stuff billions of taxpayer dollars into a dying insurance giant called AIG, itself a profound symbol of our national decline – a corporation that got rich insuring the concrete and steel of American industry in the country’s heyday, only to destroy itself chasing phantom fortunes at the Wall Street card tables, like a dissolute nobleman gambling away the family estate in the waning days of the British Empire.

The latest bailout came as AIG admitted to having just posted the largest quarterly loss in American corporate history – some $61.7 billion. In the final three months of last year, the company lost more than $27 million every hour. That’s $465,000 a minute, a yearly income for a median American household every six seconds, roughly $7,750 a second. And all this happened at the end of eight straight years that America devoted to frantically chasing the shadow of a terrorist threat to no avail, eight years spent stopping every citizen at every airport to search every purse, bag, crotch and briefcase for juice boxes and explosive tubes of toothpaste. Yet in the end, our government had no mechanism for searching the balance sheets of companies that held life-or-death power over our society and was unable to spot holes in the national economy the size of Libya (whose entire GDP last year was smaller than AIG’s 2008 losses).

So it’s time to admit it: We’re fools, protagonists in a kind of gruesome comedy about the marriage of greed and stupidity. And the worst part about it is that we’re still in denial – we still think this is some kind of unfortunate accident, not something that was created by the group of psychopaths on Wall Street whom we allowed to gang-rape the American Dream. When Geithner announced the new $30 billion bailout, the party line was that poor AIG was just a victim of a lot of shitty luck – bad year for business, you know, what with the financial crisis and all. Edward Liddy, the company’s CEO, actually compared it to catching a cold: “The marketplace is a pretty crummy place to be right now,” he said. “When the world catches pneumonia, we get it too.” In a pathetic attempt at name-dropping, he even whined that AIG was being “consumed by the same issues that are driving house prices down and 401K statements down and Warren Buffet’s investment portfolio down.”

Liddy made AIG sound like an orphan begging in a soup line, hungry and sick from being left out in someone else’s financial weather. He conveniently forgot to mention that AIG had spent more than a decade systematically scheming to evade U.S. and international regulators, or that one of the causes of its “pneumonia” was making colossal, world-sinking $500 billion bets with money it didn’t have, in a toxic and completely unregulated derivatives market.

Nor did anyone mention that when AIG finally got up from its seat at the Wall Street casino, broke and busted in the afterdawn light, it owed money all over town – and that a huge chunk of your taxpayer dollars in this particular bailout scam will be going to pay off the other high rollers at its table. Or that this was a casino unique among all casinos, one where middle-class taxpayers cover the bets of billionaires.

People are pissed off about this financial crisis, and about this bailout, but they’re not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d’état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.

The crisis was the coup de grâce: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess. And so the gambling-addict leaders of companies like AIG end up not penniless and in jail, but with an Alien-style death grip on the Treasury and the Federal Reserve – “our partners in the government,” as Liddy put it with a shockingly casual matter-of-factness after the most recent bailout.

The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class. But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron – a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers.

For Matt Taibbi’s complete report, including the people behind the crash and a look at those who stand to profit from it, check out Issue 1075 of Rolling Stone.

Truth Is In The Eye Of The Beholder

Last week the SIPA released documents that clearly contradict what NASD told member firms regarding the buy your vote sham merger of 2007.  Today we release even more shocking documents that once again hit at the nerve of regulation and forces all of us in the industry to reassess whether FINRA,  in its current form, should be disbanded entirely.  In December 2006 the NASD went on a 25 city tour touting the benefits of the merger of NASD and NYSE regulation.  Despite their efforts and “sell job” there was still much resistance and a little group of dissidents started to break down the proposed offering and began debating publicly whether this was all just a sham. Last week we released actual board minutes in which it is clear the $35,000 payment was not derived at by an IRS ultimatum as NASD claimed, but rather was the result of the NASD board meeting in which they agreed the “whatever figure we come up with it must not be negotiable”

NASD staff and sell job employees like Bill Alsover of the ‘Small Firms Advisory Board” took this to the road like they were selling an IPO in a Chinese pharmaceutical Company.  The NASD even created a site and a special link called ASSERTIONS AND FACTS.   They took each and every ‘Assertion” made by dissidents like the FIA and responded with supposed FACT.  The problem is that their FACTS were not facts at all. The IRS did NOT rule about the 35k payment until 3 months AFTER the vote took place.  The more shocking aspect of this sell job is that top ranking NASD employees KNEW they were misleading, misrepresenting and presenting FALSE facts.  For instance, here is an actual e-mail from some of the top executives at NASD on January 8th 2007, almost one month after a special web site was set up.  This e-mail can be found on page 13 of the linked documents (which we encourage you to read in full):

This is shocking to say the least.  In other words, they KNEW that their web site contained false information.  How many times did we hear leaders of NASD claim over and over that the IRS will not let us pay more then $35k?  You were presented with a fraudulent proxy and the powers that be not only knew it but attempted to cover up their mess.  The dissidents often stated that not only could more be paid but that they did not believe an IRS ruling existed.  NASD , knowing the dissidents were correct instead took it upon themselves to tarnish and bash those that questioned them.  Need more proof? 

NASD did not even have an IRS ruling letter while making these IRS claims.  In fact in a March 13th 2007 letter to the board they breathe a sigh of relief that they finally got an IRS ruling.  This letter can be found in its entirety on page 14 of the linked documents (which we encourage you to read in full)*.

Notice anything funny?  The NASD blocked out the ‘range” of payments that can be made but clearly MORE could have been paid.   In fact we would urge all members to read the actual IRS ruling letter and decide for yourself if the IRS was even given all the facts by NASD.   As you read through these documents think about how many times dissidents were called liars and how they were constantly depicted as not being truthful.  Now ask yourself after reviewing these documents whether you think our SRO needs to be overhauled?

CLICK HERE FOR ENTIRE DOCUMENT   *(Such as we have it… There are missing pages and redacted items; all of the omissions and redactions were done by the FINRA prior to turning the docs over).

The bigger question is who knew and when did they know it?  Clearly, two of the Executive Vice Presidents of FINRA knew on January 8th 2007 that they had put False information up on the web site and into offering materials as well as in road show questions and answers.  Clearly they had a ethical responsibility to at least admit the mistake and to create a new offering memorandum.  Imagine if a Broker Dealer distributed and offering in which he claimed a government agency was limiting the amount of dividends a company could pay and then FINRA examiners found e-mails in which the Broker Dealer knew the information was false but kept right on selling it that way?

Your company would be expelled from membership.  Maybe its time to expel more then just brokers from membership?

The 64 Thousand Dollar Question (isn’t that quaint? $64K? Try $1.25 Quadrillion on for size… No, $64K just sounds better. Sounds manageable)  nowadays is what should be done. The SIPA has polled members and has had conversations with many small firm owners compliance professionals regarding this issue. We are still a ways from a formal proposition, but working on it. Your thoughts and comments are greatly appreciated. And you really ought to give it some thought. Remember – Congress has a tendancy to step in and come up with solutions. These solutions are often regulatory overkill which does not accomplish the actual job of regulation, and often comes with unintended consequences – think SarBox… What is really necessary is for average folks who are responsible for the day to day compliance operations of firms to come forward with what works and what doesn’t. In any case, here are the most popular suggestions so far:

1) The Regulatory process is already overburdensome. What needs to be done is NOT whosale re-writing of the regs, but effective, principal based enforcement and streamlining of the regs – to focus on what is most important: protection of the investor and the preservation of the Public Trust. To that end, there are ways to do this which would not require massive infrastructure changes. So far, the following are suggested by members:

2) Regarding Management: The division governing Broker Dealers should be run by an individual who is:

• Honorary And Temporary; Chief Regulator should be a Two Year Maximum Position- this will prevent, to a certain extent, the creation of a fiefdom where personal agendas and politics gain serious ground
• FINRA Chair should be elected by membership on a refferendum of current membership basis – this is easy, despite the apparent difficulties; there are only 5000 firms…
• Individual should be barred for several years from revolving doors (no going to work as head of Merrill on the heels of being the Chief regulator) Eliminate these obvious conflicts of interest 
• Pay Scale For FINRA Chief Should Not Exceed That Of SEC Chair. Reasonable salary – not Wall Street Salary. This would keep the Chief honest (if overworked)
• Bonuses Should Be Eliminated For Chief Regulators; destroy the incentive to overlook big problems
• Chief should come from an enforcement background associated with financial crime: FBI, Secret Service – in short, we need enforcement that understands the scams that affect the public trust- and who aren’t beholden to realationships built over many years at Top Wall Street Firms. But the Enforcement angle is key; we don’t need the former head of a brokerage house to be charged with enforcement against friends; this would be a conflict of interest.
• We Most Emphatically Do Not Need An Individual Who Has Previously Failed In The Role Of Chief Regulator In The Past. Meritocraccy, not buerocracy, get it?

3) Regarding Policy:

• A Policy Change to unbiased Principal Based regulation at all levels. We need to understand that there is a distinction between minor adminstrative failures and failures that affect the Public. In other words, a firm should not be fined $25,000 for a tardy focus report (which doesn’t affect the Public- so long as there was no fraud involved) while another gets fined $50,000 for running a scam that bilks investors of $500 Million; a situation highly damaging to the Public Trust. And – if the appropriate response is a 30 day exit order only policy, this should be applied at the biggest firms as well as the smalles. Being “BIG” should not be a pass for anything. Currently, the Policy is based on rule based violations- to the detriment of the Public Trust. This must change.
• Net Capital does not provide adequate customer protection, nor will it provide adequate protection if it is increased. Should stay same.
• RecordKeeping requirements should be streamlined. Ask any Compliance Person. You’ll understand. The irony is that in the days of electronic automation, recordkeeping requirements have become increasingly burdensome. 
• An exemption to some of the regulatory recordkeeping requirements should be made for firms that do a de-minimus business as “finders”. No need to create a new “BD Lite” – rather, create an exemption for certain kinds of business. This can be done quickly, cheaply, and will provide immediate benefit.
• Policy Change towards assisting firms to comply with regs – not simple rule based enforcement. Eliminate gatekeepers who are more interested in locking in discovery of an error than assisting an honest broker do the right thing. GIVE GUIDANCE. No more “I need to know your firm and your crd number before I can answer any questions”. 

Okay – Your Turn. Comments Please.  

One of the smaller but nevertheless interesting informational items contained in the internal FINRA documents provided to the SIPA is that the FINRA, in planning it’s “Sell Job” for the amendments which would allow the merger is that the FINRA made use of so-called “Friendlies”. These were individuals at organizations who  promised support to the FINRA for the merger – and willingness to help the cause. What this “help” would consist of was spreading the good word of the merger, and, apparently, noting individual’s opinions regarding the proposed merger – and then turning any dissenting individuals in to the FINRA, which would classify them as “Dissident”, and then surveille, track and otherwise try to convert the so-called dissident to the FINRA’s plan. But the FINRA had noted that these Friendlies were also very good at clarifying the true information, and discrediting the disinformation regarding the merger.

But we’ve since learned that the truth, in this case, might as well have come from “The Ministry Of Truth” where everything is a lie. And the “disinformation” being spread by the “dissidents”? . In hindsight, the objections raised seem completely validated…

So – just what were those “friendlies” up to? Did they really not understand what was going on, and what they were a part of? Even when informing on innocent members? Even when speaking out to discredit them or their views? Or were they simply suckling up to the pig, trying to get their share in the power grab? Whatever the case, this author recalls Ricky Ricardo -

“LUCY!? YOU GOT SOME ‘SPLAINING TO DO!!”  

As indicated by the FINRA, these are the organizations that apparently were participants in the surveillance machine, helpers in the “Sell Job” (FINRA’s Own Words). Were this author a member of any of these organizations, I would ask for my money back immediately and cancel my membership. I am not saying everyone should do this; this is just my personal opinion and what I would do.  Whatever the explanation, it is really too late/

American Council Of Life Insurers
Investment Company Institute
Financial Services Institute
SIFMA – Securities Industry And Financial Markets Association
SIFMA – Small Firms Committee
NAIBD – National Association Of Independent Broker Dealers
NASAA – North American Securities Administrators Association
STA – Security Traders Association