More than 16 years ago, the Wall Street Journal knew risk when it saw it and wasn’t afraid to lay it bare. Of course, the topic of the piece was Bernie Madoff, unexpectedly revealed to be connected to “one of the largest ever sales of unregistered securities.” A pair of Florida accountants were investing other people’s money in a manager who promised unbelievable returns. The piece unveils Bernie as the mystery manager and then goes on to try and figure out how Bernie did it. Investors and Madoff himself confirm that he employed “convertible arbitrage.”

Way back in the pre-Internet days of December 1992, everyone recognized that arbitrage was a dicey game: “The strategy carries big risks if interest rates rise and stock prices go down,” the Wall Street Journal states.

Clearly, Greenberg is no rube. She is articulate and well-versed in the language of Wall Street. Something happened, Greenberg explains. Bernie stopped using the riskless technique. “Now he is doing something very complex.”  And what was the complex strategy? Buying baskets of blue chip stocks and then buying and selling calls and puts against the basket. “Apparently this is part of the fraudulent operation,” Greenberg concludes.

It’s tempting to damn everything complex these days as fraudulent. The performance of the credit rating agencies in the subprime mess certainly lends credence to this point of view. But as a wordsmith, I must object: Complex and fraudulent are not one-in-the-same. Higher math equations are complex but they are rarely fraudulent. Physics is complex. The markets are complex. But fraud is an act of will that can be worked into both the simple and the complex. All you need is gullible investors and guileless regulators.

Bernie may have been playing the markets straight as an arrow back in the 1960s. Or he could have been cobbling together his Ponzi scheme way back then as well. In those hoary years trades were settled only after messengers hand-delivered stock market certificates into the buyers’ hands. It would be nice to unearth one of those Wall Street go-fers to ask if they ever peeked inside the bundles they carried from firm to firm. I picture them — young hopeful wannabes and defeated old men, frayed envelopes under their arms, scurrying through the canyons of lower Manhattan, delivering packages to firms that don’t exist anymore. Just one peek, maybe two — could they have blown the whistle on a low-tech Madoff Ponzi?

Greenberg may have believed that Madoff was engaging in “a riskless technique”  decades ago. But she didn’t withdraw her money when the strategy grew complex; nor did she advise family members to go slow where Bernie was concerned.

But she wasn’t completely seduced either.

“Do you take some of the blame for your losses?” the Bloomberg interviewer asks. “Or do you squarely place the blame on the SEC and lack of oversight?” Here it was, a wonderful opportunity to dump on the regulators (not that they don’t deserve it). But instead Greenberg invokes the ultimate “R” word, rarely used on Wall Street these last few years: Responsibility.

“First of all I think people have to take individual responsibility for their investments,” she says. And then she takes a little dig at family members who were foolish enough to hand over all their capital to the incomparable Bernie. “I didn’t have all of my capital in Bernie Madoff. The members of my family who did never asked my opinion.”


The good news in the interview is that Wall Street investors may now understand that there are three important “R”s  to mind: Risk, Regulation, Responsibility. For many years, investors bought into “riskless” investing and the efficacy of self-regulation (who needs oversight — clearly these guys wouldn’t put themselves out of business?!). It seems investors are replacing “riskless” in their personal lexicons with a much more important word: Responsibility. It’s nice to know it’s making a comeback.

In fact, turns out, it was one of the major hooks for Barack Obama’s inaugural speech: “Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age.”  Obama wasn’t talking about Madoff in particular — or the careless enablers — but he was talking about the zeitgeist that allowed this spectacular Ponzi to flourish. Now, Obama urged, is the time to usher in “a new era of responsibility.”

Do you think Greenberg had a sneak peek at the speech?