Nod, nod. Wink, wink.
I have been reading Adam LeBor's absorbing, chilling book about Bernard Madoff's fraud, The Believers: How America Fell For Bernard Madoff's $65 billion Investment Scam, published a few months ago in the UK, but not yet in the US. The book fills us in on some of the details we otherwise only imagine about Madoff's affinity scam: the way he worked his Jewish network, cultivating the seemingly impeccable Ezra Merkin, for example; the importance of maintaining his facade, from Nasdaq to Palm Beach. Too often, the word "sordid" comes along with the word "details" in such books. In this case, the modifier seems about right.
LeBor makes much of (but cannot really explain) Madoff's personality. You have to have something like the numbed nerves of a professional killer to be mishpocha to Mr. and Mrs. Simon Levy for thirty years, share bouillabaisse with them every few months, and knowingly position them to lose their life's savings just when they are growing old. ("What interests me," LeBor wrote me recently, "is how he lived with it for so many years, knowing that he could be blown open literally at any moment.") LeBor believes Madoff may have been warped somewhat by class animosity, the century old hatred of insurgent, immigrant Polish and Russian Jewish shtarkers for the well-heeled snobs, the Yekkes, who had come from Germany before them and dominated Jewish social life in midtown. Perhaps.
The gullibility of investors like the Levys is easier to explain. Most of business is following up with people who come highly recommended, precisely because most of us are so risk averse. Recently, in Tel Aviv, dozens of Chinese temporary workers lost tens of thousands of dollars to a scam artist who promised to save them the trouble of sending wages home to their families. I'll take care of everything, he said. One worker brought in another.
Nor can you assume greed among the victims. If a deadly sin must be attributed, it is more reasonable to attribute sloth, the desire not to have to think about something too much. One of Madoff's most conspicuous British victims, Lord Anthony Jacobs, put is this way: "The first thing to recognise," he said, "is that the description of Madoff investors as rather greedy and going for a high return is the opposite of the truth. When I started investing ten years ago, the return was about ten or 11 per cent. Ten per cent was relatively modest." He was looking "for consistency, not fireworks."
OF COURSE, THIS is a "relatively modest" return only if you assume that some years you will make much less, or even lose something. Professional fund managers know that to make 10 or 11 per cent every year for a generation is an absurdly handsome return. Which raises the really interesting question of the book: not why investors were taken in, but why professional investment fund managers and bankers could believe that something like Madoff's fund was not a scam. After all, the fellow who eventually exposed Madoff, Harry Markopolis, was nothing but a Boston fund manager who knew his business. Why didn't more brokers and fund managers smell a rat right away, the way a Las Vegas casino's sharks home-in on the card counters at blackjack tables?
The answer, LeBor's insiders think, suggests what it really means to be, well, inside. Madoff's company, BLMIS, had two arms: a trading arm, buying and selling equities, and an investment and advisory arm, taking other people's money and (ostensibly) holding positions for them and managing their money more generally--the latter being the home of the now exposed Ponzi scheme. What enough Wall Street people told LeBor to be statistically significant is that they assumed the trading arm of BMLIS was subsidizing the investment arm in some way: that Madoff was benefiting from his vast network of connections--not only Jewish connections, but all the aforementioned social connections from Nasdaq to his country clubs--to gain insider information for stock trades; that trading in insider knowledge, itself illegal, was so profitable BLMIS could afford to keep its investment clients happy.
Why, you may ask, did not Wall Street pros then blow the whistle on trading irregularities? Here is where the nods and winks come in. You have to believe that insider trading is, to some extent, so ingrained in the culture of Wall Street that to have suspicions about it is itself unremarkable. Who wants to look pathetically naive?
LeBor notes that there is something of a contradiction here, for if you did believe Madoff could make so much from insider trades, what would be the point of his running an investment house at all? He might just as well have used only his own money, or borrowed money, and saved himself the trouble of maintaining thousands of accounts at his Potemkin village in the Lipstick Building. Then again, how would you maintain your information network if you did not run an investment fund? Which about exhausts my ability to see what's fishy, and what's just water, the way a Wall Street swell might.
Anyone who has worked on Wall Street can testify that there is no limit to greed.
Some of the people one meets there are so greedy they are barely human.
January 9, 2010 1:33 PM | Reply | Permalink
Wait! My finance profs promised me faithfully that competition among the sales people would keep their greed under control. They swore I was being protected by competition in the market at the same time they advised me that all the risk could by shifted away from my investments by using the capital asset pricing model. I could also learn about the reputations of he sales people because they were being analyzed by experts. My retirement funds were safer than social security and would give me much higher return that Social Security!
Are you saying that my finance profs were lying to me? They seemed so honest!
January 10, 2010 1:28 PM | Reply | Permalink
It does break one's heart to think that one has been misled and robbed.
Now that investors and the public have been robbed of hundreds of billions, and the robbers have been handed the keys to the US treasury, and there is no prospect of anyone being held responsible or, Heaven forbid, asked politely to disgorge the money they stole ... where are we ?
We have arrived at a Robber-Driven economy. The banks, the phone companies, the cable providers, the insurance outfits, the fund managers have no incentive at all to give any customer a break. They can and do rob you as much as they please without fear of regulation or prosecution.
Even reporting has changed: publications that are one hundred per cent in favor of the robbers are describing scams as scams, rip-offs as rip-offs and Ponzi schemes as Ponzi schemes.
You may as well bet on college hoops as 'invest' with the robbers.
January 10, 2010 4:43 PM | Reply | Permalink
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"Are you saying that my finance profs were lying to me?"
Or they didn't know what the hell they were talking about!
January 10, 2010 10:18 PM | Reply | Permalink
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December 16, 2010 9:45 AM | Reply | Permalink
The Bernie Madoff story would have had very little coverage if it were not for the fact that most of the suckers were rich liberal Manhattanites who rubbed elbows with the Mainstream media and got conned out of money they chased out of their own avarice.
The left always wants to redistribute wealth. Well, a bunch of greedy lefties lost a couple of their mansions and learjets and the money went through Madoff to jewelry store clerks, yacht building workers and maids and drivers eventually. It should fit into your ethical construct perfectly.
January 9, 2010 4:38 PM | Reply | Permalink
This troll, who obviously has the same value system as Bernie Madoff, is not the brightest bulb on the tree. To be incapable of empathy for people whose retirement disappeared as if it were dust is how this shit happened in the first place.
Greedy lefties? I mean, usually the talking point is "Do-gooder; tree-hugger, etc, etc... lefties" Greedy? Trolls are consistent in only one way: their lack of knowledge and imagination.
Is it greedy to want universal health care? No. It's greedy to NOT want it; and it is morally bereft to print lies to keep it from happening.
Is it greedy to want to regulate banks and traders so that the Madoffs of this world get caught? No. It is greedy to prevent regulations so that wealth can be concentrated among a select few, who do nothing for the common good.
I could go on, but I need to read a book. Somehow I don't think TJ does a lot of that.
January 9, 2010 6:14 PM | Reply | Permalink
No, If I did have the same value system of Bernie Madoff and most of his victims I would be a Democrat, which he was. He hob nobbed with wealthy Manhattan liberals. He donated his stolen riches to liberal causes. He donated to the Democrat Senatorial Campaign Committee and its chairman fellow New Yorker and Democrat Chuck Schumer who along with another high ranking banking and finance Democrat leader Chris Dodd received huge amounts of his stolen money too. Dodd is so dirty with scandal and bribery that he is retiring in shame. Schumer and Dodd are just a couple of the Senate Democrats that were supposed to be the oversight that you claim would have protected these investors. Are these the "do gooders" you are talking about? Take a few bribes, vote for Socialized medicine and you get to go to heaven? Great value system ya got there, half wit.
My second paragraph was clearly a tongue in cheek hypothetical, but if you don't think Manhattan has any Super Rich Liberals, then you are a moron. Most experts say the rates of return Madoff was quoting were wildly unrealistic and should have sent up a red flag, but these super rich (and some moderately rich) clients wanted more, so they passed up safer investments and went for the gold ring. In some cases it was a matter of social status amongst the limousine liberal class to be a client of Madoff, but either way, they did not use sound judgement. Does that mean they deserve to be a victim of a crime? No.
It is your value system that paints all rich people as evil, so don't start pitching me the sob stories about granny is homeless because of Madoff. These are people who had three mansions and now have two at a time when most Americans are suffering because of the criminal behavior of people like Schumer and Dodd who kicked the stilts out from under this economy.
Regulate banks? Liberal Chuck Schumer who was in the pocket of Madoff and caused a run and the collapse of Indybank, which set off a series of collapses. He is the banking expert of the Democrat party and he knows what will happen whan you cause a run like that...and you say we should trust power hungry corrupt politicans like him protect us from Peoria Farmer's Savings and home loan?You are so much more naive than the crooked Politicians need you to be in order from them to jerk you around. At least don't grab your ankles so quick when the crooked lefty politicians come looking for you, Dimwit.
This was super rich Democrats ripping off super rich Democrats.
Enjoy reading your comic book. I prefer to be vigilant about government corruption and private corruption regardless of party and if you can't educate yourself enough to get that, then bend over and kiss your life savings goodbye.
January 9, 2010 7:18 PM | Reply | Permalink
First of all, calling people names is the sign of the peasant class. But if you voted for the current Prez. you are what you are.
Ponzi, Pyramid, Global Warming....
It is not about greed as mush as people acting without thinking clearly and investigation before action.
The "wall street swell"s are not the enemy, they go to work like you and I, but if you look a little deeper at Congress and others that allow and get paid to trick and fool us with the thought that no one will investigate them because they sent a political contribution.
The rats are jumping ship and think they got away with it.
January 10, 2010 12:22 PM | Reply | Permalink
Somehow our whole education system seems directed to the absurd idea that it is good and right to make money by manipulating money. No one in that establishment seems to even question how an economy that consists solely of people manipulating money, but no one creating anything of value, can exist except temporarily. All of us go along with the absurdity because we have the chance to pick over the crumbs the vultures leave behind, invest in mutual funds and make our $10,000 become $15,000, all with no effort on our part. Maybe our nation is just morally bankrupt now - look at the teabaggers and you can't deny that.
January 10, 2010 6:35 PM | Reply | Permalink
1. Does the FIRE industry create "anything of value"?
2. Does the "economy" include businesses and workers in Japan, China, Vietnam, Bangladesh, Saudi Arabia, Nigeria, Mexico, Honduras, etc.?
Conceptually, is it not possible that a developed economy which provides sophisticated financial services to other differently structured economies which do not have the requisite expertise is generating something of value?
January 10, 2010 10:00 PM | Reply | Permalink
"FIRE industry"? I'm not aware of any such industry. The economy, as far as Americans are concerned is the American economy, and, no it does not include businesses and workers in other countries. Why do you ask?
January 10, 2010 10:36 PM | Reply | Permalink
"FIRE" is shorthand for financial, insurance, and real estate.
I ask because in an era of globalization judging an economic activity in relation to a domestic economy, only, is arbitrary, capricious, and unreasonable -- not to mention parochial.
January 10, 2010 11:14 PM | Reply | Permalink
I keep asking in the course of the HCR discussion what positive role do health insurers play in the health care we purchase. No takers as of yet on that question...
January 11, 2010 12:06 AM | Reply | Permalink
Early in the debate, I suugested the that the govt, through Treasury, bid for all listed health insurers (about 300billion) at a 50% to then share price, delist them and run them as non-profits.
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August 14, 2010 5:41 AM | Reply | Permalink
Madoff described himself as 'money manager' to his clients and claimed to be 'diversified', going so far as to create fictitious statements with equally fictitious 'diversified' portfolios. How can you blame the customer?
January 11, 2010 1:34 PM | Reply | Permalink
Professional fund managers know that to make 10 or 11 per cent every year for a generation is an absurdly handsome return. Bernard Avishai
Over the past 33 1/3 years the Vanguard 500 Index Fund has had an annual average return of 10.49% -- after fees. Unlike Bernie Madoff's returns the fund had bad years as well as good years.
That a very significant secular bull market followed the end of the 1966-1982 bear market is not an unusual event; and returns in the 10-11% were not unreasonable.
If Bernie's investors are to be faulted they should be faulted for their failure to diversify adequately -- especially important when you don't understand how your agent is generating the returns he is reporting.
January 10, 2010 11:38 PM | Reply | Permalink
Professional fund managers know that to make 10 or 11 per cent EVERY YEAR for a generation is an absurdly handsome return.
Not averaged over 33 years.
January 11, 2010 2:28 AM | Reply | Permalink
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Madoff benefited because his customers thought he had insider knowledge which was helping him make profitable trades. They never questioned that what he said he wa s doing did not make sense. ChexSystens
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