NAV Premiums of Certain Precious Metal Trusts and Funds - Chasing Madoff, Chasing Metals

"The dissenter is every human being at those moments of his life when he resigns momentarily from the herd and thinks for himself."

Archibald Macleish

I had the opportunity to watch the documentary Chasing Madoff yesterday.

It is largely about how Harry Markopolos and his two associates discovered the likelihood of fraud in the Madoff fund, and their decade long battle to bring that fraud to light.

I do recommend you see it if you can.

What is most important, what everyone seems to be missing, is that Bernie Madoff was not some mad genius acting in secrecy through his cleverness. The dodgy nature of his fund was known by many hundreds of firms on the Street, and most anyone with a decent level of financial sophistication could readily see that something was wrong with his business model and returns.

Indeed, one could not see his scheme for the most part by willfully not looking at it, which is the course that the SEC took.

The scheme 'worked' for so long because Madoff let his enablers, the Street and the feeder funds, take the bulk of the fees from unwitting investors. So quite a few of the people who should have known were caught in a credibility trap. To expose Madoff would involve some risk for themselves, and to say nothing and plead ignorance was lucrative.

As for the media, Markopolos had written and gift-wrapped the story, made a list of witnesses, and mailed it to the Wall Street Journal years before the scheme was exposed. And it was killed from above. It wasn't until Madoff publicly confessed that the media responded, and then it was with spectacle rather than insight.

As for the SEC, although a few people were forced to resign, not one person involved was prosecuted. As has recently come out from a determined whistle-blower little mentioned in the press, it was a top down policy decision not to pursue any corruption in the investment management industry that caused the SEC to ignore this vast criminal conspiracy during the first decade of 2000.

And the irony is that even the work of Harry Markopolos did not lead to Madoff's downfall. The market panic in 2007 caused a run for liquidity, and at that point Madoff's scheme fell apart of its own weight. Madoff himself was able to plan his own confession, and make whatever provisions he wished beforehand as far as records and evidence.

In court he 'copped a plea' and was sentenced to 150 years, but did not speak, did not implicate anyone else.

There is a strong suggestion that very powerful and well connected people were involved in this, and that if he had taken some other course of action, Madoff would have been a dead man.  This occurred before as the documentary shows, including the silencing of witnesses.

The plutocrats would like us to think that Madoff was just a clever rogue trader, some outsider.  That the SEC were just lawyers incompetent in finance.  That the press was too preoccupied with other things to investigate.  And Markopolos was an obsessive oddball who happened to get it right.  What happened was an anomaly.  The system is secure.

This documentary reminded me very much of the precious metals market, although as a global market  it is on a much grander scale. If so, I think that there is a good possibility that things will play out in the same way.   Do I think this is some tortured analogy?  Do you think that prices falling in the face of rising demand, stubborn secrecy, and numbers that never add up over a long period of time make sense?  Good luck with that.

The regulators will keep stonewalling.  The scheme to sell paper gold and silver, essentially the same bullion many times over, will go on until some event forces a run on supply, and then the scheme will collapse.  It is both embarrassing and lucrative.  It is all carrot and little stick.  And so frauds like this can continue on for a long, long time.

I think we should remember that despite all the histrionics in the Congress, and the fine talk of reform from the new president Obama, little to nothing has changed in the US financial industry. The same environment of compliant conspiracy to gain huge sums of easy money through a pathological criminality exists today.   There are few investigations and even fewer prosecutions.

I think we have had our wake up calls several times, in the collapse of MF Global and what followed, the widespread rigging of the key LIBOR interest rate, and most recently in the odd market divergences between paper and reality. It is hard to believe these things when they happen, unless you understand what lies underneath them. 

Take this for what it is worth.  As the story Chasing Madoff says, because you see figures on a piece of paper, that does not necessarily mean that there is anything behind them.  And when the scheme unravels, events move quickly.  And many people are ruined, and no one seems to care.

Their hypocrisy knows no bounds, their willingness to hide the truth no limit. They do it to protect themselves, and 'the system' that serves them.   One has to wonder how far it can go, and what happens when it can't.

There is a sad story in Chasing Madoff about a smart young man named Abe, whose father-in-law had a huge sum of money with the Madoff fund.  Harry Markopolos handed over the evidence to him, and he showed it to his father-in-law.  After the Madoff scandal became public, Abe called Harry Markopolos' associate and thanked him for what he did.  He lost everything, because despite the evidence, his father-in-law could not believe that there could be a lie so huge for so long, and that Bernie, whom he had known for years, would cheat him.

I do think that the precious metals markets and a good part of the banking system today are such a scheme.  And when something happens to break such a scheme, prices will adjust rather suddenly.  I do expect a profound cover-up and a declaration of force majeure on some pretext. 

There may even be some move to make people do something that they do not wish to do, such as hand over their metal in storage, which is not there anyway, or bail-in their bank deposits, or turn in their dollars for new dollars, at a rate of about 100 to 1.  Or just take a big loss and shut up.  Or something even harder to imagine.  What limits are there to madness?

And then we will see what happens next. But I do not believe for one minute that this is over.  To the contrary, I think we have only just begun.  There will be no sustainable recovery without significant reform.  Whether it is austerity or stimulus makes little difference when you are caught in a Ponzi scheme, and living a lie. There is no other option than increased transparency and reform.

Whatever wealth is provided goes to the top, and to continue to support the scheme.  And the urge from the plutocrats and their enablers will be to silence the dissenters, and lash out at the weak, at the defenseless, and finally at the other.  And if taken, history shows, almost without fail,  that this is a Faustian bargain, a mariage de convenance with evil. And that madness serves only itself.

"I believe we have a crisis of values that is extremely deep, because the regulations and the legal structured need reform. But I meet a lot of these people on Wall Street on a regular basis right now. I'm going to put it very bluntly. I regard the moral environment as pathological. And I'm talking about the human interactions that I have. I've not seen anything like this, not felt it so palpably.

These people are out to make billions of dollars and nothing should stop them from that. They have no responsibility to pay taxes, they have no responsibility to their clients, they have no responsibility to people... counterparties in transactions. They are tough, greedy, aggressive, and feel absolutely out of control, in a quite literal sense. And they have gamed the system to a remarkable extent and they have a docile president, a docile White House and a docile regulatory system that absolutely can't find its voice. It's terrified of these companies.

If you look at the campaign contributions, which I happened to do yesterday for another purpose, the financial markets are the number one campaign contributors in the U.S. system now. We have a corrupt politics to the core, I'm afraid to say... both parties are up to their necks in this.

... But what it's led to is this sense of impunity that is really stunning and you feel it on the individual level right now. And it's very, very unhealthy.   I have waited for four years... five years now to see one figure on Wall Street speak in a moral language. And I've have not seen it once. And that is shocking to me. And if they won't, I've waited for a judge, for our president, for somebody, and it hasn't happened. And by the way it's not going to happen any time soon, it seems.

Jeffrey Sachs

SEC Formally Charges Goldman Sachs In Derivatives Fraud with Paulson and Company - another 'Rogue Trader at Work?'

“Only fraud and falsehood dread examination. Truth invites it.”
Dr. Samuel Johnson

The SEC is formally charging Goldman Sachs with fraud in the derivatives markets, specifically with regard to Collateralized Debt Obligations related to subprime mortgages.

Investors in Goldman's Abacus CDO lost one billion dollars.

In addition to the company, an individual VP in Goldman's international group is being charged, Fabrice Tourre.

Paulson and Company, a major hedge fund, paid Goldman to structure a CDO based on mortgages that Paulson selected, so that they could bet against it.

"The product was new and complex, but the deception and conflicts are old and simple. Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party,” said Robert Khuzami, director of the division of enforcement.

This could be construed as a deft way of throwing red meat to the angry mob, nailing a specific individual at Goldman while limiting the criminal charges against the company although there will be significant civil cases, and dealing with the billionaire hedge fund owner Paulson who made a fortune betting against the subprime market.

This could be more damaging if this includes other Goldman bets against its customers on products it represented and created, and it shows an overall intent to create fraudulent products for the purpose of shorting them. For now the SEC will not say if this fraud is a singular event or more systemic.

Goldman will almost certainly attempt to spin this as the actions of a 'rogue trader' who was an aggressive exception.

Last week the White House asked Jamie Dimon and Lloyd Blankfein to 'cool it' on their intense lobbying efforts against derivatives and financial reform.

Perhaps this will help them in their decision.

This is just the tip of the iceberg. The Wall Street Banks are knee deep in fraud.

No one can obtain the kind of consistently odds defying returns that Goldman was producing without either cooking the books or engaging in some type of gaming the system, which is a polite word for fraud. That is the same 'tell' as the steady and outsized returns that Madoff is producing.

Let's see if this goes any deeper, and if serious punishments and reforms result.

The SEC can only enforce the Securities Laws, but cannot bring criminal charges. Since Paulson is not being charged, since he made no representations regarding the products, only Goldman is being sued by the SEC. Their alleged gain in this is $15 million dollars, the fees it obtained from Goldman. And Goldman will say that they were only serving their customer, Paulson.

Certainly Goldman will be subject to civil lawsuits and discovery. But the real test of the Obama government will be any role that the Justice Department does or does not take in this. They could of course defer, using the show trials of the Financial Crisis Inquiry Commission as a rationale to take no action.

This is blatant fraud and white collar crime being conducted by an organization that is paying contributions to half the Congress and the Administration, and staffing key positions in the government with its employees. Do you really think it will be brought to full disclosure and equal justice?

In a statement Goldman says that "The SEC’s charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation." Fabrice Tourre was last seen being thrown under a bus, and could not be reached for comment.

Watch the Justice Department and the Obama Administration to see what they do or do not do, and you will be able to know their character and intents. But in fairness the big Broker-Dealers in the US are RARELY indicted for anything. They virtually own the country's political and justice system.

"I did not run for office to be helping out a bunch of fat cat bankers on Wall Street." Barack Obama to CBS News.

Time do something besides talk the US to death about what you are going to do, and how the Republicans and lobbyists are getting in your way, and how great it will be when you finally do it. The SEC is relatively toothless, and probably by design. The FCIC will be tramping in the weeds for the rest of the year.

You do not need the Republicans, and you do not need the Congress, to fully engage the Justice Department and the FBI in investigating this fraud, Mr. Obama.

The most likely outcome will be a disgorgement of profits and a wristslap, and a promise by Goldman to change its business practices, while admitting no wrong. That will be the 'business as usual' outcome, and a sign that reform is an illusion.

Meanwhile, the market manipulation continues. I thought it was cute the way in which the metals bears used this news to sell the market in an attempt to sustian their huge naked short positions. "Never waste a crisis."

The US Congress reacts to the scandalous news.


Breaking news on breaking the rules, more to follow.

Investors Who Lost In Madoff and Stanford Schemes Want Government to "Make Them Whole"

These are, by and large, relatively well-to-do people who were considered 'qualified investors,' or ought to have been. They were able to place large sums of money in obviously risky investments seeking abnormally high rates of return, which they did receive for many years.

The notion that the government should retroactively cover their losses, even indirectly, by taxing the public is obviously repugnant.

What about the many who have lost, on a percentage basis, equally if not more devastating amounts of their retirement savings in the tech, housing and credit bubbles? Their only fault is that they lack the political connections and high powered lawyers to make the case for them to the Congress, and the influence to get their way from pliable Congressmen.

I feel mightily sorry for anyone who has lost money in these fraudulent markets. I spend quite a bit of my personal time trying to warn people about the snares and pitfalls that are allowed to continue in the US financial markets even today. And there are many of them. Consumer Protection is not a priority in Washington.

A better case might be made to sue the Wall Street exchanges, the private self-regulators, and the auditors and ratings agencies for gross negligence in allowing these frauds to continue for so many years. Prosecutions for fraud and corruption across a much wider circle of enablers is generally what is done. It was done in the 1930's and it was done after the Savings and Loan Scandal.

But that will not happen. The financial sector is contributing far too much to the politicians in Washington, and too many powerful politicians are beholden to them, despite what smooth words that might pass their lips in public.

To take the losses of wealthier investors from hedge funds and other high risk investments having no productive benefit or socially redeeming value, and socialize them to the many is almost unbelievable.

And the backing of Senators Richard Shelby and Bob Corker for this is just another sign of the disgraceful corruption and patronage to a select few that infests the Finance Committee in the Senate. These are the Senators on the Finance Committe, among others, who are blocking and weakening financial reform. What hypocrites!

"These capitalists generally act harmoniously and in concert to fleece the people, and now that they have got into a quarrel with themselves, we are called upon to appropriate the people's money to settle the quarrel." Abraham Lincoln, speech to Illinois legislature, Jan. 1837

BusinessWeek
Madoff Victims Join Stanford Investors to Lobby for Payback
By Robert Schmidt and Jesse Westbrook
March 10, 2010, 12:16 AM EST

March 10 (Bloomberg) -- Victims of Bernard Madoff and accused Ponzi schemer R. Allen Stanford are banding together to lobby Congress for a law that could require Wall Street firms to pay billions of dollars to cover some of the losses they suffered.

As the groups’ leaders walked the Capitol halls separately over the past several months, they learned how to find the Senate’s Dirksen Office Building and to call their proposal “revenue neutral,” meaning no cost to taxpayers.

They also gleaned another lesson: The broader the geographic base of support, the better the chance of legislative success. The result is a coalition of the Democratic-backed, East Coast, and mostly Jewish investors defrauded by Madoff, with the Republican-backed, largely Christian, Sunbelt residents victimized by Stanford. The disparate groups now find themselves bound by a common notion: They’ve been cheated, and they want the government to make them whole....

The lobbying initiative “gives new meaning to the word chutzpah,” said James Cox, a professor at Duke University School of Law. “This is just a tax increase. It’s levied on banks but customers end up paying.” Until recently, the two groups were going at it alone, and not winning much support except from lawmakers in their regions.

Shaw’s Stanford group had backing from Richard Shelby of Alabama, the senior Republican on the Senate Banking Committee, and other panel Republicans like Bob Corker of Tennessee, David Vitter of Louisiana and Kay Bailey Hutchison of Texas, said Shaw, who also works part-time as a spokeswoman at the Federal Reserve Bank of Dallas.

“These are very Christian” people, Shaw said, referring to the Stanford victims. A lot of members were marketed the Stanford securities “at church...”