Today's Stories

January 21, 2009

Gabriel Kolko
Understanding Gaza

January 20, 2009

Chuck Spinney
Hosing Obama Israeli Style

Kathy Kelly
The Strongest Weapon of All

Raymond Deane
The EU, Gaza and the Lisbon Treaty

Ralph Nader
State Terrorism Against Gaza

Audrey Stewart
Why I am in Gaza

Jonathan Cook
Israel's Doctrine of Destruction

Harvey Wasserman
A Ten-Point Solar Agenda for Obama

Christopher Ketcham
Inauguration Ad Nauseam

Robert Jensen
A Citizen's Oath of Office

Dave Lindorff
Commie Chorus on the Mall: This Land Really is Made for You and Me

David Macaray
SAG Watches It All Slip Away

January 19, 2009

Kevin Alexander Gray
Time for an New Divestment Campaign

Uri Avnery
The Boss Has Gone Mad

Kathy Kelly
Respite in Gaza

Mike Whitney
What Obama Left Out of His Economic Recovery Plan

Lawrence R. Velvel
Investing with Bernie Madoff

Mats Svensson
For Fatima in Gaza

Harry Browne
Obama's Bard: Springsteen's Working on a Dream

Norman Solomon
The Return of Triangulation

Jeffrey Sommers
The Baltic Riots: Really Existing Thatcherism

Kenneth Libby
Manipulating MLK Day

Peter Ewart
Robbie Burns, Mackenzie and Gaza

Bob Sommer
"The Fierce Urgency of Now"

Website of the Day
Death of a Whaler

January 16-18, 2009

Alexander Cockburn
Hail to the Chief

Caoimhe Butterly
Terribly Bloodied, Still Breathing

Audrey Stewart /
Kathy Kelly
Suddenly Bombs Started Falling: Report from Gaza

Jeffrey St. Clair
High Plains Grifter: Geo. W. Bush, a Concise Biography

Ellen Cantarow
I Could Not Save a Single Child

Neve Gordon
How to Sell "Ethical" Warfare

Vijay Prashad
An African-American in Gaza

Jonathan Cook
Israeli Attack Injures 1.5 Million Gazans

Rannie Amiri
The UN in Israel's Crosshairs

Andy Worthington
Guantánamo's Forgotten Child

Joshua Frank
Forecasting Obama

Dave Lindorff
Prosecuting Bush and Cheney

Brian Cloughley
Who Runs America?

Belén Fernández
Changing the Equation

Missy Beattie
Peace and Justice Denied

Fred Gardner
Growing Pot for Research

George Ciccariello-Maher
"Oakland is Closed!"

John V. Whitbeck
Democracy Not Partition

Stephen Fleischman
Card Check

Mischa Gaus
Medicare for All! Tackling Union Opposition to Single-Payer

Saul Landau
The End of the Affair

Norm Kent
Perils of the Grow House

Alejandro López
Give Bush the Shoe! (and Send Us the Photo)

David Yearsley
The Glory That Was Dresden

James McEnteer
Doin' the Time Warp Again

Lorenzo Wolff
An Album That Lives Up to Its Cover

Kim Nicolini
Patti Smith's Dream of Life

Poets' Basement
Three Financial Poems by Brian J. Foley

Website of the Day
Lancet: Medical Conditions in Gaza

January 15, 2009

Pam Martens
Wall Street Powerhouses Invested Alongside Madoff

Karl Grossman
Obama and the Military - Industrial - Scientific Complex

M. Shahid Alam
Gaza's Shattered Mirror

Jules Rabin
Gaza Besieged, Gaza Mauled

Alan Farago
The Nail-Gun Bailout

Ron Jacobs
The State of Black America: From Oscar Grant to Barack Obama

Timothy Seidel
Just Violence in Gaza? The Calculus of Proportionality

George Ochenski
Why No Montana Wilderness?

Todd Chretien
Taking a Stand for Justice in Oakland

Bob Fitrakis /
Harvey Wasserman
Obama's Marijuana Prohibition Acid Test

Website of the Day
Uranium Watch

January 14, 2009

Henry A. Giroux
Killing Children With Impunity

Kathy Kelly
Cease Fire, Cease Siege

Franklin Lamb
A Second Front? Hezbollah Militants Chafe as Gaza Burns

Mike Whitney
The Big Contraction: Why the Stimulus Alone Won't Work

Paul Craig Roberts
The Humiliation of America

Glen Ford
Sullying Dr. King's Legacy: the Congressional Black Caucus and Israel

Aditya Chakrabortty
The End of Property Porn

Dave Lindorff
Fattening the Rats: Feeding at the Bailout Trough

Jonathan Cook
Israel Bars Arab Parties From Elections

David Swanson
Conyers Explains Why He Didn't Push Impeachment

Martha Rosenberg
Fragile: Handle with Risperdal

Website of the Day
Report of a Red Cross Worker in Gaza

January 13, 2009

Norman Finkelstein
The Facts About Hamas and the War on Gaza

Jonathan Cook
Is Israel Using Experimental Weapons in Gaza?

Michael Neumann
Hamas and Gaza: Slave Revolts and Passionate Evasions

Coleen Rowley /
William John Cox
No Victors in the War on Dissent

Robert Sandels
Cuba and the Obama Administration: Subversion Through Trade?

Saul Landau
The Changeling: an Obama Nightmare

David Swanson
What to Ask Eric Holder

Wajahat Ali
Waltzing with War Crimes

Sam Bahour
No Other Option? A View From the West Bank

Stanley Heller
Why It's Useless to Lobby Congress on Gaza

Robert Jensen
Beyond Grief and Rage

Robin Mittenthal
Eating Away at the Land That Feeds Us

Website of the Day
The 50 Most Loathsome People in America

January 12, 2009

Uri Avnery
The Blood-Stained Monster Enters Gaza

Paul Craig Roberts
Our Collapsing Economy

Mike Whitney
Israel's Moral and Political Insanity

Ewa Jasiewicz
Oh, Quiet Night: Only Six Homes Were Bombed

Bill Quigley
A Day in Gaza

Dave Lindorff
From Vietnam to Gaza

Bill and Kathleen Christison
Blowback From a Tragic Error: a Message to Barack Obama

Jonathan Cook
Israel Ponders the Third Stage

Andy Worthington
Seven Years of Guantánamo

Kara N. Tina
Oakland on Fire

Brenda Norrell
Palestinians and American Indians: Russell Means Breaks the Silence on Obama

Nour Kharma
A Plea From a Teen in Gaza: "Will I Die, Too?"

Website of the Day
The Villages Group: an Antiwar Alliance in Sderot

January 9/11, 2009

Alexander Cockburn
Israel's Onslaught on Gaza: Criminal, for Sure; But Also Stupid

Kathy Kelly
Tunnel Vision: Report from Arish, Egypt

Bill Quigley
Report From Rafah: Doctors Stopped at the Border

George Ciccariello-Maher
Oakland's Not for Burning?

Elaine C. Hagopian
Gaza: History Matters

Mike Roselle
Drowning in a Toxic River: What Can be Done to Save Appalachia?

Steve Hendricks
The Torturer-Elect?

Gary Leupp
Revisiting the Tale of Samson

Jonathan Cook
Outcry Over Israel's War Crimes

Karim Makdisi
The Ceasefire Plan: the UN Finally Acts, But Does It Mean Anything?

Rannie Amiri
Livni's Big Lie

Peter Morici
In the Jaws of a Depression

Peter Montague
Can Chemicals be Regulated?

Ralph Nader
Move Fast to Restore the Rule of Law

Andy Worthington
The Dying Days of the Guantánamo Trials

Nadia Hijab
A Music School Silenced in Gaza

Dan Bacher
Unholy Alliance: Nature Conservancy Backs Schwarzenegger's Big Ditch

Catherine Fenton
The American Peace Movement and Israel

David Macaray
Wal-Mart Caught Stealing

Valia Kaimaki
Why Greek Youths Took to the Streets

Richard Morse
Haiti's Gas Gang

David Yearsley
To Gotham City with Dexter Gordon

Charles R. Larson
The Horror, the Horror

Richard Rhames
Gaza and the Goon Squad Meet the Wizard

Stephen Martin
Meltdown Memo to Come?

Lorenzo Wolff
What They Sing About When They Sing About Love

Poets' Basement
Anderson, Beatty and Valentine

Website of the Weekend
Gaza Protest

January 8, 2009

Jean Bricmont /
Diana Johnstone
Gaza Seen From Paris

Franklin Lamb
How Dershowitz Misstates, Misrepresents and Misapplies the Law

Paul Craig Roberts
The Difficulty of Being an Informed American

Kevin Alexander Gray
Give Burris His Seat

Chris Floyd
The Enduring Priorities in Obama's Time of Change

Ewa Jasiewicz
Riding on Fire in Gaza

Steve Conn
Sanjay Gupta and Obama

Harvey Wasserman
Kill the Nuclear Stimulus!

Wayne S. Smith
An Opening to Cuba?

Linda Mamoun
Re-settling Gaza: the Real Goal of the Israeli Invasion?

Adam Turl
Unions and Young Workers

Chris Papaleonardos
Mourning Maria Dimitriadi

Website of the Day
On the Wing

January 7, 2009

Saree Makdisi
What Kind of Security Will This Barbarism Bring Israel?

Franklin Lamb
Bend Over Professor Dershowitz, It's Time for Your Check Up

William Blum
America's Other Glorious War

Belén Fernández
The Trauma Vortex: Israel's Monopoly on Psychological Suffering

Lawrence Davidson
What is New About Gaza?

Allan Nairn
Adm. Dennis Blair and the Church Killings in East Timor

Jonathan Cook
What is Israel's Objective?

Muhammad Idrees Ahmad
Watching the War on BBC

Deepak Tripathi
Bush, as He Leaves

Cal Winslow
Now is the Hour to Defend Democracy in the Labor Movement!

Manuel Garcia, Jr.
To Students Planning Careers: Be Mindful

Dr. Hannah Safran
No More Recycled Military Solutions

Website of the Day
CNN: Israel Broke the Ceasefire First

January 6, 2009

Pam Martens
It's All One Big Lie

Victoria Buch
Real Estate War in Gaza: the History and "Morals" of Ethnic Cleansing

Neve Gordon
Israel's New War Ethic

Tami Sarfatti /
Yonatan Mendel
What Silence Says: Gaza is Still Waiting on Obama

Mike Whitney
The Gaza Bloodbath

Alan Farago
After the Fall

Gary Leupp
A Hamas Coup d'Etat in 2007?

Larry Everest
Silent Partner: the US-Backed War on Gaza

Ron Jacobs
The New Iraqi Sovereignty

David Macaray
Union-Busting is Alive and Well

Stephanie Basile
Where's Anna's Money?

Stacey Warde
An Uncle's Unrest

Website of the Day
Israeli Refusenik on Gaza

January 5, 2009

Paul Craig Roberts
Will There be a Recovery?

Sousan Hammad
Phoning Home to Gaza

Wajahat Ali
Flying While Brown

Mats Svensson
Longing in Gaza

Jen Marlowe
Abeer's Baby

Muhammad Ali Khalidi
Gaza Phone Tag

Brian Cloughley
Israel is Immune From Criticism

Faheem Hussain
Gaza and India: a View From Pakistan

William Cook
Consider the Realities of Gaza

Dr. Trudy Bond
The Madness Among Us

Christopher Ketcham
The Revenge of the Blogger at the National Press Club: a Rotten Washington Interlude

Steve Early
Who Rules SEIU?

Dave Lindorff
When It Comes to Terrorism and POW Cases, Equal Justice Under Law is a Joke

Website of the Day
The Endangered Fish of the Colorado River Basin

January 2 - 4, 2009

Alexander Cockburn
Diary of 2008: an Incredible, Hope-Filled Year

Uri Avnery
Molten Lead in Gaza

Jonathan Cook
The Real Goal of the Gaza Assault

Paul Craig Roberts
Whatever Happened to Western Morality?

Brian Eno
Stealing Gaza: an Experiment in Provocation

Ralph Nader
America Must Stop Shirking Its Responsibility on Gaza

Omar Barghouti
UN Complicity in Israel's Massacre in Gaza

Graham Usher
Where Pakistan's Generals and the ISI Draw Their Lines

P. Sainath
The Economy is Worse Than It Appears

Belén Fernández
Pardon Our Dust: Israel's PR Campaign for Gaza

Deb Reich
Shiv'a in Gaza, December 2008

Gary Leupp
Defacing Mr. Jefferson's Wall: Preachers and the Inauguration

Michael Yates
Top Chef or Top Wage Thief? Tom Colicchio and the Economics of Restaurants

Joanne Mariner
How to Close Guantánamo

Seth Sandronsky
Funding the Israeli Military: the US Pipeline

Cynthia McKinney
We Lived to Tell the Story

Sonja Karkar
Israel's Dogs of War

Deepak Tripathi
Gaza in Perspective

Robert Fantina
Obama, Afghanistan and Israel

John Ross
The Year No One Can Remember

Norm Kent
The Heat on Duval Street: Why Head Shop Raids are Unfair and Unjust

Larry Portis
Syria and the Arab Barbie Doll--Before the Deluge

Richard Rhames
Is Conscience Dead?

Dee C. Lubell
We Come From the Sun: Zora Neale Hurston and Richard Wright

David Yearsley
A Gay German at the Courts of the Medici and Hanover, and of Course the BBC

Lorenzo Wolff
Joe Ely, the Fighting Rooster of Rock

Marc Catone
Looting Lennon's Legacy

Poets' Basement
Five Poems by Grzegorz Wróblewski

Website of the Weekend
Earth in High Rez

January 1, 2008

Jennifer Loewenstein
If Hamas Did Not Exist

Oren Ben-Dor
The Self-Defense of Suicide

Wajahat Ali
The U.S. Response to the Gaza Crisis: Unfair and Unbalanced

Saul Landau
In Cuba No One Man Could Steal $50 Billion From Other People

David Michael Green
What to Expect While We're Expecting

Website of the Day
Morbid Anatomy

December 31, 2008

Pam Martens
Wall Street's Collapse and the Ownership Society

Neve Gordon /
Jeff Halper
Where's the Academic Outrage Over the Bombing of a University in Gaza?

Ted Honderich
The First Casualty of Israel's War

Brian Cloughley
Five Little Girls on a Sofa: Gaza's One-Sided Images

Ron Jacobs
What is Hamas, Really?

Vijay Prashad
Hot Rod and His Sikh Warrior: Blago's Indian Connections

Franklin Lamb
Mr. Mubarak, Tear Down That Wall!

Mike Whitney
My Brilliant Career

David Macaray
What Really Killed the Auto Bailout

Richard Thieme
The Betrayal of the Commons

Mary Lynn Cramer
Who Wins What in Gaza?

Stephen Lendman
The Troubling Case of the Fort Dix Five

Worthy Group of the Day
Western Shoshone Defense Project

December 30, 2008

Paul Craig Roberts
May We No Longer Be Silent

Tariq Ali
The Gaza Ghetto and Western Cant

Robert Bryce
The $775,000-a-Year GI

Jonathan Cook
Electioneering with Bombs

Gary Leupp
The Fishbarrel War

Dave Lindorff
Tough Guys Don't Walk: Will Cheney Seek a Pardon?

Brian McKenna
Ted Downing and Troublemaker Anthropology

John Walsh
The End of the Green Party

Ramzy Baroud
Gaza and the World

Bob Sommer
The Education of David Frost

Worthy Activist of the Day
Support Marie Mason

December 29, 2008

Jennifer Loewenstein
Israel's Attempted Endgame in Gaza

Neve Gordon
What, Exactly, is Israel's Mission?

Joshua Frank
Obama and the "Special Relationship"

George Salzman /
Manuel Garcia, Jr.
The War Against Palestine: Exception From Humanity

Norman Solomon
A Hundred Eyes for an Eye

Ewa Jasiewicz
Gaza Today: "This is Just the Beginning"

Rob Larson
The Banks Laugh All the Way to the Bank

Kenneth Libby
Arne Duncan's Dark Years in Chicago

Robert Weissman
The 10 Worst Corporations of 2008

Elsa Johnson
High Noon at Black Mesa: Bush's Farewell Gift to Peabody Coal

Nicola Nasser
Resolution 1850: Bush's Parting Gift

Belén Fernández
Hanukkah Games

Worthy Group of the Day
Nuclear Information and Resource Service

December 26-28, 2008

Alexander Cockburn
The Medusa's Head

Dr Eyad Al Serraj
The Boming of Gaza: "An Earthquake on Top of Your Head"

Jeffrey St. Clair
Cancerous Air

Bradley Simpson
Obama's New Intel Chief, Dennis Blair, Ran Interference for Indonesia's Butchers

Ralph Nader
Government Without Laws

Gary Leupp
Obama and the Graveyard of Empires

Ellen Cantarow
Richard Falk, Israel and the NYT

Matt Landon
The Great Coal Ash Flood: a Report From Swan Pond Road

David Macaray
SAG's Terrible Dilemma

Patrick Bond
End of Neoliberalism? Sorry, Not Yet

Norm Kent
Invoking Bigotry: Obama and Rick Warren

Brian T. Ketcham
Fuel Efficiency is Easy--Just Don't Let Detroit Tell You How to Do It

Rannie Amiri
War Clouds Over Gaza

Larry Portis
Changing the Ethnic Vocabulary

Richard Rhames
Welcome to Soup Kitchen America

Stephen Lendman
29 Red Flags: Early Suspicions About Bernard Madoff

James L. Secor
Unheralded Coup

Ramzy Baroud
Iraq, the Plot Thickens

Harold Pinter
Art, Truth and Politics: the Nobel Lecture

Cpt. Paul Watson
Tracking the Cetacean Death Star

Howard Lisnoff
Nixon's Cambodian Shock Treatment

Michael Dee
The Bill of Rights, Killed in Action by the War on Drugs

Steve Conn
Eight Predictions for 2009

Poets' Basement
Valentine, Kaung, Moser and Graham

Worthy Group of the Weekend
United Mountain Defense

December 25, 2008

Judy Gumbo Albert
What Were Those 1960s Terrorists Thinking, Anyway?

Rev. William E. Alberts
The Sole of Christmas

Hannah Mermelstein
Caution: Settlers Ahead

Worthy Group of the Day
Citizens' Coal Council

December 24, 2008

Bill Quigley
Five Bailout Lessons From Katrina

Saul Landau
Then and Now: Venezuela and Cuba, 1960-2008

Sam Smith
Evangelism and Politics

Brian Cloughley
Torture, Slaughter and Lies

John Ross
Where's al-Zaidi's Pulitzer?

Eric Walberg
Cold War Shivers

Norm Kent
What Will Obama Do About Marijuana?

Stephen Martin
Reasons for Cheerfulness

Worthy Group of the Day
Collateral Repair Project

December 23, 2008

Michael Hudson
The Ponzi Paradigm

Michael Yates
The Tombstone Economy

Chuck Spinney
The New York Times Flames Out in Defense Dogfight

Vijay Prashad
India's Reckless Road to Washington, Through Tel Aviv

Brian Horejsi
Interior Decorating: Obama, Salazar and the Future of America's Public Lands

David Macaray
Obama's Best Pick?

Neil Watkins /
Sarah Anderson
Ecuador's Conscientious Default

David Michael Green
Hey, Reagan Democrats! Now Do You Get It?

Worthy Group of the Day
Focus on the Corporation

January 21, 2009

My Experience (Part Two)

Investing with Madoff

By LAWRENCE R. VELVEL

Click here to read Part One of Investing with Madoff.

Over the years since 1995, Madoff, as often said in the media these days, made steady annual returns -- on which one paid ordinary income taxes, not capital gains taxes. The rates of return were unspectacular, especially when compared with the returns made by many hedge funds and, during many years, by mutual funds. But on an annual basis Madoff didn't lose money, which was a major plus. The idea that he made money every month, however, is misleading. There certainly were some months when he lost money, and there were months when he made very little if anything, say a quarter or a half a percent. There were also months when he made, say, a percent and a half or two percent, or sometimes even a bit more. The monthly variations made the whole deal look Kosher, at least to an amateur, as did the variations in annual returns. On the all important after- tax basis, the annual returns were generally between seven and ten percent. They therefore were probably not much more than, and often were certainly much less than, the annual returns obtained by investors who bought stocks or mutual funds in order to make capital gains. For capital gains are taxed at much lower rates than the more-than-one third rate applicable to ordinary income, plus principal invested in stocks and mutual funds appreciates tax free -- so one gets appreciation upon appreciation, as well as on original, tax free appreciation of principal -- until the investment is cashed in, in layman's language. (One also can't help remembering that hedge fund managers who were making hundreds of millions or billions per year -- one recently made $1.7 billion in a single year -- paid a tax rate of only 15% on their earnings.)

Also, every month every investor received a lengthy statement of transactions from Madoff. While I personally lacked the training to fully understand them due to their complexity, accountants did understand them. To the accountants, who of course had the required financial training, they made sense. The idea that someone could be making up complex statements of this nature -- and so many of them yet, if the thousands of clients he is recently said to have had is accurate -- boggles the mind even today and didn't even enter the mind then. I personally never heard a whisper of the remotest suspicion of such invention, and can only say it must have taken a corps of aiders and abettors. The news reports say that something like 20 people worked in Madoff's "private" office on a separate floor, the 17th, to which no one else in the firm was allowed access apparently. Many of these people must have been involved in making up the false statements and therefore must be coconspirators even though Madoff supposedly claimed to be doing it himself. (Were his brothers, his two sons, and his niece, all of whom were major figures in his firm, also denied access to the private offices? If they were, didn't they consider it odd that they, his nuclear family members, with whom he worked closely in the business for years, and to whom he apparently was very close on the personal level, were denied access to the offices? Didn't it raise their suspicions, even if one assumes, as I frankly don't, that they were innocent of any knowledge of what he was doing?)

So it went for many years. If one wanted to occasionally withdraw money to meet unusual or other expenses, one always dealt with DiPascali (or his assistant) and the check would arrive promptly. If one wanted to invest more money, one again dealt with DiPascali. This was the way it was until December 11, 2008, when Madoff was arrested. Then a lot of information began coming out that must have been deeply unknown to most investors, including me. The information included the shocking fact that the whistle had been blown on Madoff at least as far back as 1999 or 2000, when an investment professional named Harry Markopolos, who had operated with derivatives, had sometimes used the split-strike conversion strategy, and was mathematically expert, had informed the SEC, both orally and in a memo, of reasons why Madoff's business could not possibly be on the up and up. Markopolos kept at this until, most recently, 2008, one gathers. As one can see from the long-confidential but now public 2005 version of his memorandum, with the arresting title (no pun intended) "The World's Biggest Hedge Fund Is A Fraud," Markopolos gave reason after reason why Madoff's operation could not possibly be on the up and up. (The 2005 version of the memo will soon be made available at Velvelonnationalaffairs.com.) Many of Markopolos' reasons were completely comprehensible even to a layman, let alone to financial and regulatory experts. But, as so often during Markopolos' eight or nine years of trying to get the SEC to act, it did not stop Madoff in 1999 or early 2000, from 2001-2004, in 2005, in 2006 or 2007, in early 2008, or at anytime until December 11th.

Equally amazing was that an article blowing the whistle on Madoff had been written in 2001 for a hedge fund-industry publication called MAR/Hedge (RIP) by a reporter named Michael Ocrant. This journal was something read by those connected with the financial industry, doubtlessly including at least some regulators, but obviously is not something read by the general public. (I personally, like 99.999 percent of the American population I would bet, did not even know it existed.) The article gave many of the most pertinent, comprehensible reasons given by Markopolos, but the readers of MAR/Hedge(RIP) apparently did nothing. Certainly the SEC did nothing.

Also in 2001, a shorter article appeared on Madoff by reporter Erin Arvedlund. The article, which focused on secrecy by Madoff, and ignored some of the signs that even a layman would understand, appeared in Barron's. That article was mixed in nature, with much that was favorable to Madoff, and even advised readers how to invest in Madoff if they wished to. In any event, though Barron's must be read by a larger audience than MAR/Hedge (RIP), this article received no general play from the media (and I personally never heard of it until after December 11th, just as I and most others had never heard of Markopolos or Ocrant). And again the SEC did nothing to stop Madoff. (The Ocrant and Arvedlund articles will also be made available shortly at Velvelonnationalaffairs.com.)

After December 11th, however, the media began covering Madoff's scheme, including the red flags called to the attention of the SEC by Markopolos, several of which were also mentioned by Ocrant and a few of which were mentioned by Arvedlund. I shall focus now on the red flags that would clearly have been of crucial importance even to a layman, had he known of them.

A foremost red flag was that Madoff apparently was not even making the trades of securities shown on the monthly statements. When already suspicious financial experts checked trades shown on Madoff's statements against actual trades all over the country on the given day(s) -- which experts knew could be done and knew how to do -- they could find no record of Madoff's supposed trades. The trades shown on the monthly statements were fictitious, a fact which still seems unbelievable a month after the scandal broke. Experts who checked this got out of Madoff. Wouldn't you get out if you learned that trades shown on your monthly statement were (amazingly enough) fictitious, had not been made, were purely inventions? The expert SEC apparently checked out none of this, however, so the average investor was again left completely in the dark.

Another red flag discussed by Markopolos was that the options market was not nearly big enough to support the number of puts and calls necessary for the volume of trading in stocks that Madoff claimed to be doing. Madoff had apparently denied this, when asked about it in the past, by claiming he was buying options on the over the counter markets, where they are not totaled. But experts (like Markopolos) said Madoff's explanation could not be true because the whole options market, on the exchanges, over the counter, or wherever, was not big enough to support Madoff's trading in securities. By a huge multiple, there simply weren't enough people who were willing to put enough money at risk in puts and calls to support Madoff's trades in stocks. This meant that Madoff could not be providing the downside protection, via puts, that was key to the deal, and should have been checked out immediately by the SEC. The SEC apparently did not check it out, however, and the average investor was once again left in the dark.

There was also the growth in the amount of money Madoff was managing. Lots of us were under the impression, fostered in the 1990s, that Madoff was investing for family and friends. We knew nothing of huge feeder funds, of recruitment of investors all over the United States, Europe and South America, or of the fact that he apparently was running 6 to 7 billion dollars by around the year 2000 and tens of billions apparently by 2008. This was all news to me after the scandal struck.

Had people known it, what would they have done? Would they have considered it a mark of how good he was and stayed invested? Would they have gotten worried, and maybe even gotten out, because this was so different from what they previously had always thought the situation was? -- Some believe (like I often do) that when things get too big, disaster often, even usually, occurs. Well, it's impossible to know now what people would have done had they learned the truth about the amount of money Madoff was running and what he was doing to get it. But one thing I do know: the SEC never saw fit to find out and to tell investors the truth.

There also was Madoff's secrecy. Hedge funds who invested with him, for example, were not allowed to mention his name in their marketing materials. Yet as Markopolos said, if you ran the world's most successful investment operation, wouldn't you want that fact bruited far and wide in order to increase your business? The reason for Madoff's secrecy says Markopolos, was so that the SEC wouldn't learn what he was doing. And to further maintain secrecy, when huge investors were thinking of putting in money, but wanted to examine Madoff's books in order to do due diligence, which they of course could afford, Madoff would not allow the examination, claiming a desire not to have proprietary strategies disclosed to any one else. (Well, it looks now like he had good reason for nondisclosure, but it wasn't to keep proprietary strategies secret.)

There is also the question of leverage (which was not discussed by Markopolos). I have now read a couple of times that Madoff was using leverage of three to one, which means that for every four dollars invested, three came from loans. The use of leverage is very dangerous because, if the market goes down, with three to one leverage your equity (which is one-fourth the investment) is wiped out if the market drops 25 percent. That Madoff was using leverage was news to me, and I'm not sure the articles which said he was doing so were correct. If they were correct, I suppose that the puts (if one assumes he was buying puts) would guard against a 25 percent loss by confining a loss to a point far less than that. Nonetheless, the use of leverage was very dangerous, and leverage certainly was not the deal people like me signed up for.

This brings up a related point. Madoff said he was hedging by buying puts. Yet, Markopolos says, he did not sell his arrangement as a hedge fund, and one never thought of him as a hedge fund. For hedge funds, it is constantly said in the media, use extensive leverage since this creates the opportunity for huge gains. At leverage of 3 to 1, for example, if the price of the share doubles from, say, 100 to 200, the equity share is now 125, or five times the initial 25 percent invested to buy at 100. (I have recently read that some funds were using leverage of up to 40 to 1, which is frankly not believable because, at 40 to 1, a 2.5 percent loss in the price of a share wipes out one's equity.) Also, hedge funds invest in fancy, complex, incomprehensible derivatives, which always seemed to some of us (I think Warren Buffet for one) a disaster waiting to happen. Since one didn't know Madoff was using leverage if he in fact was, nor that he could conceivably be involved with fancy derivatives, one simply didn't think of him as a (potentially dangerous) hedge fund even though he was hedging against losses by (supposedly) buying puts.

Then there were other things, many again mentioned by Markopolos, which were red flags but again the average investor knew nothing of them. There was the now infamous fact that his auditor was a tiny three person shop - - and apparently only one of the three was an active accountant. A major Wall Street firm that is not audited by one of what was the big 8, and is now the big 4, or some similar large firm? How could this not have been a major warning sign to the SEC? And where did this small shop come from anyway? How did it get it involved with Madoff -- Markopolos claims the accountant was Madoff's brother-in law, and another person at least has claimed the accounting firm was originally Madoff's father-in law's and Bienes and Avellino had once worked for it). And, if it got involved when Madoff started, how did it remain his accountant when he grew into a major firm? A very red flag about which thousands of people were completely unaware. The SEC, however, should have been all over this one like a blanket. I wonder: can the SEC point to any other major Wall Street firm with a rinky dink shop as auditor?

There was also the fact that Madoff's own firm handled his trades and the back office administration and kept custody of the securities. I gather this is the way most hedge funds work, but it is not the preferred method in the financial industry. The preferred method is to have independent firms do these things, in order to make sure that the claimed securities and money exist. That Madoff's arrangement lacked this safeguard should have been yet another red flag for the SEC.

Also peculiar in the extreme is the asserted fact that Madoff's family, as was everyone but those who worked on the 17th floor, apparently was barred from the floor where the chicanery went on. If this was true, didn't his family think it was peculiar that they, who were close to their father, brother, uncle, were barred? And if they weren't barred, and ever went down there, didn't they ever see anything or ask anybody about what was going on?

Curiously, Madoff would sometimes claim that his trades were handled in Europe by counterparties (whatever that means), but would tell other people he was making big money on commissions obtained because his firm was handling the trades. If the counterparties were other than his UK office, didn't his family members ever notice the discrepancy, and didn't they ever wonder why they were being denied the vast financial benefits that would have occurred if his New York office was handling the trades? Yet they never inquired about any of this?

Given the close relationships involved, it is extremely difficult to believe that none of his family members ever had the slightest inkling that something untoward was happening. And his family, of course, also had close professional and personal relationships with the SEC. His niece, an official of the business, even married an SEC official who had worked on the agency's minimalistic investigations of Madoff. The family's relationships with the SEC are, I gather, to be one subject of an investigation being conducted by the SEC's inspector general.

There were, of course, people on Wall Street who suspected, as did Markopolos, that the Madoff deal was not on the up and up. Suspicions were so strong that their companies refused to do any business with Madoff. I believe Goldman Sachs and J.P. Morgan were two of them. In his 2005 memo to the SEC, Markopolos gave the SEC the names of four highly placed Wall Street executives it should speak with -- one being at Goldman and a second at Citigroup -- because these executives were convinced, based on their expertise in and experience with derivatives, that Madoff's returns could not be for real.

There were large institutions, and major-league-rich investors, including Arab investors, which hired due diligence firms to investigate whether the institutions or investors should invest with Madoff, and the due diligence firms, after looking into the situation, cautioned against investing with him because of red flags like some of those mentioned by Markopolos. There were fund managers, whom Markopolos talked with, who had money in Madoff but did not themselves believe that Madoff could make money month in and month out, and thought that he was subsidizing losses in bad months. Translation: they didn't believe him, but left their funds' money with him anyway because he was doing well by them overall. So all these experts and big league money managers thought Madoff was fraudulent but never spoke with the SEC, and thousands of people who invested with Madoff knew nothing of their views.*

TO BE CONTINUED.

Lawrence Velvel, dean of the Massachusetts School of Law, is the author of Thine Alabaster Cities Gleam and An Enemy of the People. He can be reached at: Velvel@VelvelOnNationalAffairs.com

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