Madoff madness is our own
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Bernie Madoff’s failings are not the mark of some isolated monster, although his crimes are heinous. He is so much like every one of us that failing to recognize this fact will imperil us at every financial turn.
This is one of many revelations in Diana Henriques’s stunning new book The Wizard of Lies: Bernie Madoff and the Death of Trust.
The man who bilked $65 billion from friends, family, institutional investors and charities knew what he was doing. As far as we know, he wasn’t incapacitated from bipolar disorder, substance abuse, schizophrenia or some gargantuan chip on his shoulder to prey upon the wealthy. He stole and lied consistently to all and told Henriques he was fully aware of his mammoth deceit every step of the way.
Madoff was not a man conspiring in a bunker. He went to countless high-society parties, gave to charities and was admired by most who encountered him. Yet when he finally admitted his fraud, it was a surprise that ruined individuals and charitable foundations. His own son, trying to escape the shadow of his father’s foul deeds, committed suicide.
The scale of his crime can’t be overstated. As the serial falsifier of whole portfolios, Madoff claimed to manage twice as much money as Goldman Sachs, Henriques states.
“He was faking everything,” Henriques writes, “from customer account statements to regulatory filings, on a scale that dwarfed every other Ponzi scheme in history.”
Next to the mavens of the 2008 meltdown, Madoff may be the Stalin of Ponzi villains (there are always other scamsters out there). Yet any attempts to personify him as a three-headed hydra will miss the main point of Henriques’s masterful narrative. Here’s the clincher, which Henriques saves for page 345:
“The Madoff case demonstrated with brutal clarity another truth that we simply do not want to face about the Ponzi schemer in our midst: He is not “other” than us, or “different” from us. He is just like us — only more so.”
This chilling revelation illuminates human nature itself. We want to believe that someone like Madoff is “taking care” of us — and our money. When some negative vibe buzzes in our ear like Jiminy Cricket, we compartmentalize it in the part of our brain that is like a dead-letter file. We don’t question the reality of outlandish claims and can’t own up to our avarice.
I’ve seen so much investor denial in the past three decades of covering finance that I could spend the rest of my life writing about it. Some of it flies beneath the radar like high-yielding structured products that are loaded with risky and complex derivatives.
Most of the deception, though, lies in banal investments like variable annuities or overpriced 401(k)s. We’re fleeced every day, but may not know it because of our trust in our advisers, a brand name or simply a bold promise.
Here’s a short list of what we need to know about investing, but routinely fail to ask ourselves with any skepticism:
- If an adviser is pitching a six percent yield when most one-year certificates of deposits are returning one percent, what kinds of risks will you be taking to achieve that return? How much can you lose if the promise doesn’t pan out?
- Can the adviser beat a broad-market index like the S&P 500 on a regular basis? Most can’t. If they have a few good years, they are lucky, not skillful, and luck doesn’t last long in investing. Most lag the market averages over time after management expenses, taxes and inflation. It’s a fact of life.
- Is your principal really protected? Outside of low-yielding FDIC-insured product, you will pay dearly for any guarantees. How much will it eat into your principal? What are the commissions and internal fees?
How do we avoid the Madoffs of the world when we consistently trust people we shouldn’t and fail to ask the right questions?
Henriques suggests that we need mandatory financial education in school and be required to get a license after we are tested on basic money skills.
While I agree that everyone needs this skill set — and it should be taught beginning in middle school — I’m not sure if licensing is the way to go. Plain-language, gob-smacking tobacco-like warnings on investments that state “this is hazardous to your wealth” are another alternative, although crooks always manage a way around disclosure.
Ultimately, we need to turn off our brain’s belief and trust circuits to avoid hazardous investing. The truth is often not in our heads, but in our guts.
“That is the most enduring lesson of the Madoff scandal,” Henriques concludes, “in a world full of lies, the most dangerous ones are the ones we tell ourselves.”
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Another crumb off the cookie of our paradigm. ‘in a world full of lies…’ Now if we can just look at ourselves from a vast distance and with objective eyes we should realize that we are monsters because we are at the mercy of the great monster we have created. The capital market. Growth on this earth is finite, but not according to financiers and economists. It’s pure madness to continue chomping this stale cookie when the dire consequences of continual perpetual growth will destroy our way of life. Please tell me how a growth based economy is a plausible solution to anything that we need to accomplish this century? Down with Wall Street! Down with shareholders! Down with sociopathic corporations that literally are the true movers and shakers of the world today, it seems.
The basic premise that we are like Madoff is hogwash. She is correct in that fault lies with us for being so intellectually lazy that we put our financial fate in the hands of others. But that only explains the environment in which Madoff operated. His crimes were so vast and so evil that he richly deserves the label of monster. He is not just like us. The vast majority of us do not look to be preditors of others.
Never having been fleeced by Madoff or anyone else, I can assure you that the truth is definitely to be found in our head. People didn’t know because they didn’t want to know. A few because of lack of diligence in managing their own affairs, others, and I think the majority here, suspected but didn’t care as long as they got theirs.
They were special, and indeed, so it proved.
Like Madoff, not really he is in jail and the rest of us are living in the hell created by these Wall Street miscreants.
Unfortunately – there are a 1000 Madoff’s operating right now with 10s of thousands learning and waiting in the wing for their day in the sun. Greed is a monstrous addictions that afflicts many people.
Greed becomes harmful to many when someone cunning is privy to circles of trust and power.
Their ego and greed feed each other till they believe themselves to be untouchable. It’s actually very easy to recognize these cockroaches. Their arrogance and crooked grin are a dead giveaway.
Don’t get drawn in to their lies or associate with them – least you be fleeced.
What’s that old adage? If it sounds too good to be true, it probably isn’t. I am sorry for the people who were taken by Madoff, but a little investigation into his practices and common sense would have helped save them from their financial losses. These characters have been around since history began, and they will still be involved as long as there is greed and a chance for a fast buck. Buyer beware!
No we are not all like him. In fact just because this did not involve murder does not make him less of a criminal that affected many peoples lives significantly. We need to stop feeling sorry for the criminal! This guy had the same opportunities that any of us would have had to do the right thing. He choose not too. Not because he was mentally unstable, or was desperate. No he did it for his own greed! Now I know that many of his customers probably had this same greedy goal to make lots of money and its their own fault for trusting this man. But many did not have money to burn and also trusted Madolff to help them not hurt them. Investing is a risky deal and it does not guarantee a huge return.
But to say Madoff was like us is a insult to most of American’s or the human race for that matter!
I think that it is wrong that we hear the word investments all the time. Our country would be far better off if we directed our own investments and grew new businesses and services. I think the people who invested with Madoff were people who did not have to work hard for their money, and they were surprised when they discovered it was gone.
He is not like us. Most of us have a conscience and a moral code of conduct. Most of us are not out to hurt our fellow man. Not he is not like us. He is deranged. He is a monster. Shame for putting all humans in the same category as Madoff. Shame!
Diana Henrique:
Speak for yourself and the devil, not for us with real Americans.
All those who are like Madoff should be in jail. If they are not, our laws should be revised to patch those loopholes.
Madoff, and many others like him ARE the reasons why America is sliding down economically, morally, even intellectually. If crooks are respected, why compete in noble feats — that’s their motto.
Madoff is public enemy number one. Diana Henrique and many crooks who had lived under radar and profited tried to distract, deceive Americans to believe that we are like Madoff!! And people who outcompete us are our enemies! Such books should be denounced.
Theories like that are a ponzi scheme in itself that will destroy everything that’s left in America.
I hope enough sensible people will boycott this book, and stop Diana Henrique from making money out of dragging our nation down!
Anybody who finds himself or herself resembling Madoff in ANY way should get an extreme makeover from deep inside, all the way our. Start with Ethics 101, things one should know by 10 years old.
Madoff isn’t anything at all like me. He’s a thief.
What do you expect? Most people have become “speculators”.
The goal is no longer to create a product, innovate or provide a service but to speculate on price fluctuations. There are millions of these pricks who earn huge sums of money. Maddoff is just an extreme case of this example. Not only these individuals are at fault but the culture which supports them.
I agree that we all need to be a little wiser, educated, and cautious when investing but we also need protection. Even SEC investigators have admitted that they have trouble understanding the derivatives and flim flam products that are sold on Wall Street. No amount of education and licensing will protect us from the fraudsters. Why is the government so reluctant to enforce the law and punish the white collar criminals? If Bernie had pleaded not guilty he probably would have received a 10 year sentence and early parole.
I think in a sense Madoff is just “like us” since he embodies all the ideals that have made this nation the richest and most unequal nation in the world. He is the epitome of “savage capitalism”; a voracious, greedy, heartless, sinister, unscrupulous and insatiable vulture. Creatures like him on Wall Street are the ones who are bringing this powerful country on to it’s knees by playing “masters of the universe” games to indulge their megalomaniac egos…
Perhaps the capital market is not the “great monster” as Buckj54 suggests. Read Ayn Rand’s books, please!
It’s buyer beware out there! all the “good people” lost ther money,- O Dear. The real crime here is this guy with all that money is in jail- I mean if you can’t buy some frends in south america stuff some suitcases with money and disapear forever you sure didn’t do any planing.
I agree with better financial education as advocated by the author but it will not protect us from cheats and liars. More stringent enforcement of the law, better trained SEC agents, and harsher punishment for financial fraud might put some fear into these flim flam artists. I’m tired of reading that the victims of Madoff’s fraud were also his accomplices by closing their eyes to his scheme. Actually Madoff won over most of his victims by promising a very conservative but consistent investment return. He wasn’t selling oil drilling in Siberia. Madoff looked like a safe harbor compared to some of the other wild hedge funds with few of his victims understanding that it’s impossible to produce even 10% year after year. More naivete than greed. More not understanding the lesson of asset allocation and not putting all your eggs in one basket. Why are the victims always at fault for trusting an SIPC sanctioned firm that the SEC refused to police properly? What about locking up Madoff’s real accomplices? He paid a bunch of people a lot of money to create phoney statements and false computer programs to help him devastate the lives of thousands and yet Madoff is the only one connected to the crime rotting in jail.
The guy embodies what we should all wish to die within ourself.
The interaction of some excuse that only serves to depreciate human existance.
Reverse evolution period.
We’ll aren’t we all just holier than thou.
Back when I was a police reporter in the last century, an old cop once told me “there’s a little larceny in everyone’s soul.” To stop future Madoffs, we have to look in the mirror first. But that doesn’t excuse what he did or suggest that we don’t need more cops on the beat — we do. And I think it’s criminal for some in the industry and GOP to suggest that the SEC should be hamstrung because they didn’t catch Madoff or the meltdown. More boots on the street are always better for everyone. If no one is watching, even more crimes are committed.
To claim that we are all like Madoff, a greedy sociopath, is a stretch, but the fact is that we are all potentially Madoff enablers.
“You can’t cheat an honest man.”