I was watching a documentary on Bernie Madoff, and I can't understand how he got his operation started as a market maker. The 45-second span beginning at 2:30 in this video is what confuses me:
https://www.youtube.com/watch?v=t8e8Aq3Ss0o#t=02m30s (it wont let me embed the video for some reason)
I get that it was the 1960s, but even then, with $50,000, how does someone just start taking in orders and executing trades? I assume he was selling stock from companies not on the NYSE or AMEX, but how did he actually go about doing that? Does he call some little mining company or some furniture manufacturer and say he'd like to sell their stock, and then he tries to find saps willing to buy shares of some company they've never heard of? I just have no concept of how this would work.
And then the mention of buying "order flow" by paying a mutual fund company to buy stocks for their portfolios through him--how could he afford to do this, and how did he get access to broker stock from the companies to be bought at a cheap enough rate that he could afford to pay mutual funds for order flow? Why wouldn't Merrill Lynch just use whatever channels Bernie was using to purchase the stocks they want directly?