Bernie Madoff’s Gullible Investors and Guileless Regulators
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.”
Ouch.
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?
Getting to your closer … I think Obama talks and talks, just like any con. Better than Madoff. Never give a con a second of your ear, and in this case — your essay — to use Scottish “ne’r gae a con a ha’penny”, and certainly no credit in ink and pixels.
Madoff still free, where is the money, where are the financial enablers? ie brokers
Obama talking about taking responsibility, 1 trillion dollars, just chump change.
Americans will admit to an error in judgement, this makes us stronger and smarter. However the regulators and politicians never seem to admit their errors. When everyone is loosing the financial institutions and politicians are always winning. ponzi or no.
“Riskless”… “riskless”…
Where have I heard that term used before…?
Oh yes, now I remember, it was when Franklin Raines was bilking American taxpayers out of billions of dollars while buying votes for Democrats, who ran interference for him.
@gordo: We the People keep re-electing these scum. Why should they consider themselves accountable or take responsibility for anything?
Bernie Madoff knew one thing well and that was PT Barnum’s maxim. Yep, there’s a sucker born every minute. I bet he never serves any jail time.
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Becoming John Galt
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.
Ouch, not quite :
In fact, Madoff used Jewish charities to build up immunity from snoopers. Anyone suspected of being anti-Madoff was leaned on—heavily. There were many who steered clear of Madoff nonetheless. In 2003, the French Société Générale figured that Madoff’s numbers didn’t add up and placed him on its blacklist.
The trouble is that the U.S. government will not go all the way while prosecuting Madoff. Uncle Sam would if there were pension funds involved, but going to bat for some rich white Europeans is not Sam’s habit. Obviously Madoff has hidden assets, perhaps in the billions, and most of his feeder fund managers have money, too. I don’t see any of them wearing striped pyjamas any time soon. Smart lawyers, the best money can buy, will defend them against underpaid government mouthpieces. The leading players so far have maintained a stony silence, making sure to avoid any kind of apology or statement of responsibility
http://www.takimag.com/blogs/article/madoffs_make_away
and bizarre business ????
Almost forgotten in the Madoff scandal is another scandal in which Morris “Moshe” Talansky, a New York businessman, admitted that he gave Olmert $150,000 in cash contained in envelopes.
http://onlinejournal.com/artman/publish/article_4234.shtml
So, who is afraid of Mad Wolf ????
We are a nation of men not of laws.
Madoff and Buffet started out around the same time under the same set of rules and same economic sea. Madoff stole all his clients money and Buffet made his clients millionaires.
More laws will not fix this. A complete rewrite is necessary and also people need to heed the old maxim: Buyer beware.
It’s amazing how 0bama’s words mean so many different things to so many different people. A bit Nostradamus like. Or maybe more like the Koran.
Ms. Miller, it was a great piece until you jumped head first into that tar pit. Faithless people like me will never know the head buzz of Teh One. All I can do is wonder what it’s like.
It’s easy to blame the regulaters and hard to take personal responsibility.
Ms. Miller, since you proclaim yourself to be a wordsmith, the phrase is “one and the same” (no hyphens), not “one-in-the-same”. I wouldn’t say anything, normally, but I agree with #7. Don’t start quoting Obama’s rhetoric. It’s just rhetoric. It never means anything.
The Wall Street Journal is really amazing! Didn’t know anyone was ever on to Madoff.
Has fraud become easier to pull off, in this age of modern media? Or has fraud always been with us, in keeping with the tools of the times?
Thanks for the warning about financial advisers. She obviously didn’t do due diligence.
Not to worry—I’m sure there are plenty of Bernie Madoffs waiting in the wings–with new “complex” schemes!