Bernie's naughtiness...

"Look at the list of those who lost money. Swiss private banks. Jewish family foundations. Retirees in Palm Beach. Not exactly the Fast Eddies of finance. But therein lay the brilliance of Madoff's scheme. He didn't promise the usual Ponzi manna from heaven--double or triple your money with Bernie Madoff's surefire, get-rich quick scheme! No, he promised and delivered 10% returns. So consistent were his returns in good times or bad, an investment in Madoff came to be called the "Jewish Bond." His investment strategy was a "black-box" model, one to which no one but him had access. And yet when the returns were good, no one bothered to ask how he was making them.

Madoff also moved easily in the familiar power networks of New York. He was chairman of the co-op board at his fancy Upper East Side building. He was chairman of the board of Yeshiva University's Business School. A member of exclusive country clubs in the Hamptons and Palm Beach. Strange as it may seem to people beyond this claustrophobic social world, these are not positions assigned lightly.

Madoff had earned the trust of individuals forged in the fires of New York finance, law and government, supposedly some of the toughest, smartest, savviest people in the world. He fooled them all over many years, and his reputation among them probably protected him from scrutiny."  Forbes

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I love New York, sort of...

The delis are grand.  The pastrami is as nowhere else.  Ben Benson's Steak House is perhaps my favorite watering hole anywhere.  People walk fast.  They talk fast.  "Whaddaya got?  What's next?  Whaddaya got?" would be a typical conversational gambit by a proprietor in a small Manhattan shop.  The brittle, hard edged attitude is hard to match except in Paris.  Antagonistic cleverness is a point of pride.  It is clear that New Yorkers are among the smartest, most worldly people in the country, if not the world.  Their transplanted descendants in California are much the same.  We country bumpkins are awestruck at their sophistication.

So, how did this "Ponzi scheme" happen?  How did it succeed so well for so long?  This is not a New York thing?  Ah.  You see.  I did not realize that. 

Nevertheless, it does seem that the "Big Apple" has suffered a good many setbacks this year.  The disasters in the financial and commodities markets, the collapse of investment banks like Lehman Brothers and insurance giants like AIG, the ravages wrought by hedge fund managers spinning out fantasies of non-existent leveraged positions, Secretary Paulson, Chairman Bernancke, etc.  Are these not all phenomena of NewYork City and its outlying barrios in Palm Beach, the Caribbean, etc.?

I will be there for the next days.  I'll take a corned beef on Rye with mustard, to go.  While I'm waiting I'll have a Manhattan straight up.  pl

Comments

[William R. Cumming]

Since insurance does not cover fraud, perhaps the $50B that went up in smoke will be largely tried to be taken as casualty losses on all those 1040's assuming the profits were reported in the past. Suggest a full audit of all past investors in this scheme even for returns not technically open. Live by the sword, die by the sword.

[Twit]

The Beastie Boys said it best: I love New York, and if you don't like it, then hey, #$% You!

That said, many modern New Yorkers are masters of that type of groupthink that makes people so ruthlessly unoriginal in their behavior, yet just as awestruck by their supposed uniqueness.

Personally, I see a straight line from Hipster Williamsburg to Rubin's Citi to Madoff to the Obamaniacs, and finally of course to the life of one Brian:
http://uk.youtube.com/watch?v=LQqq3e03EBQ

[Ormolov]

To me, here's the unspoken thing about this story:

"He fooled them all over many years, and his reputation among them probably protected him from scrutiny."

Bullshit. Everyone's being so genteel about this, as if all these saintly scions of New York were taken for a ride by this devilish crook. When in fact, most of his deals must have gone something like:

"Ten percent? He gets you ten percent annual returns? For years?"

"Well, he doesn't just work with anyone."

"I'd like a look at his strategy."

"No can do. It's a secret money-making machine and only he knows how it happens."

"Well that's ridiculous. You want me to put all my money in the hands of a man who won't tell me what he's doing with it?"

"Not just any man. Bernie is one of the big boys. He ran NASDAQ. Capiche?"

"Ah. Now I do. I'll just write a check out to him then..."

MEANING: Yes, I understand that ten percent returns are fantastical and impossible, but this asshole is so connected that he has gamed the system. He just needs my cash to grease the wheels then I can get a fat slice of ill-gotten gains for myself.

Now I'm sure there are any number of innocent small-time investors whose savings were collected in larger funds. I feel sorry for those regular people, especially the retirees. But their fund managers and anyone who consciously made a decision to invest with Madoff did more to wipe out this country's economy than almost anyone else. The ultra-rich are destitute? Cry me a river all day. Their suffering is one of the only good things that has happened during this catastrophe.

[alnval]

Col. Lang:

Delightful! You bring back memories of drinking Manhattans and eating too much bread and cheese at Mama Leone’s before we even saw the menu.

Bernie’s Naughtiness is not a New York thing really. It’s just that New Yorkers do it with such style and panache that they’re hard to resist. You’ve got to love ‘em.

Look how neatly Bernie fit his marks into the already accepted New York exclusive social divides and exploited their ‘specialness’ with his own special deal-making sales pitch designed to entice, titillate and finally ensnare.

It would make a wonderful movie perhaps with Alec Guinness. Or maybe he already made it.

[JohnS]

The setbacks are only beginning. NYC's commercial and residential real estate industry has been in bubbleworld for the last 25 years or so, almost entirely due to the ridiculously outsized growth of the 'financial services' industry. Now that that industry has been completely decimated, look for those days to close out fast. It'll still be pricey here when you come here in the next few days, but by this time next year, you'll find yourself getting much better deals at Ben Benson's.

Hey, you should try the pastrami at Katz's Deli on the Lower East Side (@ Houston St near First Ave).

[Bobo]

Try Mark Josephs in the Seaport area. Quality is much better and now considered the #1 place in Manhattan.

Started with a slab of bacon then seafood platters, a lamb chop for taste and onward to the Porterhouse Steak finishing with cheescake and a cognac last Thursday with 20 friends.

How many more of these Ponzi scemes will we see in the next few months???

[zanzibar]

Lets not forget Greenwich and our nation's capital Washinton DC with its bi-partisan corruption.

[charlottemom]

It's not gone unnoticed that Madoff's sons are obsessive and superb fishermen. Their father sure knew how to reel them in; be patience and engender trust. Ha!

Perhaps these bilked Madoff investors may yet see some of their money returned, as they've lost it to fraud and not malinvestment. That's the silver lining of this fraud - perhaps, these investors, will get cents back on their dollars. Terrible yes, but better than the Lehman investors!?Or Wachovia, or countless others.

And to think many of these investors must have turned a blind eye on Madoff's manuevers as his returns were so good. Could the thinking have been, "it's ok if he plays fast and loose, cheat, even, as long as it's not us!

[bigbird]

Living in the burbs of NYC, I am long familiar with the stereotypical New Yorker with his net worth imprinted on his forehead. But playing the market? Not limited to this area or era.

Back in the Go-Go era, 1967 to be precise, I was stationed in Germany and remembered the first shirt having a conversation about the wonders of the then new mutual funds. Those guys were being taken to the cleaners by the front end loads and unaware of how the market value would be wiped out in a few years. As a new shavetail, I didn't have the income to participate.

By virtue of a corporate deferred savings plan that predated the 401(k), I've been in the market for a long time, and too many market cycles. I've prospered, but its still wrenches my stomach each time it happens. Similarly, I've been in the same house for years and have watched the values yo-yo with the same stomach turning effect even though the mortgage is long paid off and I'm in no danger of losing the house.

Greed is a wonderfully efficient motivator.

[David J]

A number of people interviewed said they figured Madoff was cheating since he was a market maker and had returns they couldn't explain - they just didn't think he was cheating them!

Also, is anyone surprised to see the apparent family tie between the Madoff's and a former Assistant Director of the SEC...

[robt willmann]

How did Bernard Madoff make off with so much of other people's money for so long?

There is a counter-intelligence maxim that says--

"The greater the bona fides, the greater the deception".

So it was, and is.

Oh, I don't think we country bumpkins down here are awestruck with the "sophistication" of folks in New York and California. Once you understand that a person who went to college, law school, business school, got his name in the newspaper, or appeared on television can lie to you with a straight face to get his hand in your pocket just like a street panhandler, all that "sophistication" appears as just another con. Put another way, you then quickly see that the emperor has no clothes, as in Alan Greenspan, Ben Bernanke, and Henry Paulson.

I think I read that the sophisticated State of California was going to be broke around March of next year if it doesn't get an injection of billions of "liquidity".

The next question is whether Mr. Paulson -- with his unconstitutional unilateral authority from Congress -- is going to try to give some of that "Troubled Asset Relief Program" money to those claiming to have been bilked by Mr. Madoff.

Is there a double con in the offing?

[Fred]

Who is on the board of directors of this hedge fund and what public (and private) companies are they also board members of? They should be removed and held accountable for the malfeasance (or at a minimum misfeasance). The same can also be said of the board oversight of Citibank, AIG and others...

Thanks for the tip on Ben Benson's Steak House; I'm going to NYC right after Christmas for the fist time in 20 years.

[Leila Abu-Saba]

I was a devoted New Yorker from age 19 to age 31. I love that city passionately and a piece of my soul still lives there. I am a New Yorker. Sort of.

One thing I noticed from the beginning about New Yorkers. They can be curiously provincial. They think they are extremely sophisticated, clever, fast, smart, knowledgeable, with-it and ahead of the trends...

But in fact New Yorkers are subject to group think, sheep-mind, and sudden gusts of faddishness like anybody else. They can also be myopic, immersing themselves in their little subcultures and failing to stay in tune with the wider world. They'll dismiss crucial information because it isn't trendy, or accepted as bona fide by their subculture.

If X is the Big Thing on Park Avenue/Wall Street/Lower East Side/Art World/Publishing/etc. then all the hipsters and honchos of said subculture will believe without much question that X is the Big Thing.

New Yorkers can be gulled like anybody else.

Meanwhile - have you walked the esplanades at Battery Park City down to the Battery? It's a bitter time of year to do that but what a monumental hike. The Cloisters are also lovely. Enjoy.

[JerseyJeffersonian]

Hey, Rick,

I like Vince from Shamwow. Sure, he's a huckster, but an old school huckster, as he's at least selling you something demonstrably tangible (You know, the Germans always make good stuff...). Mr. Maddow seems to have run a long con that traded on his gradual accretion of personal social status as a way of deflecting curiosity about what actually went on in the black box. In a way, he was no better than any other mook whispering from an alley, "Psst, hey buddy...", except that he wore a three-piece suit and arrived in a limousine. Really, if it seems too good to be true, it probably is. Something for nothing? Try nothing for something, shlimil.

[jonst]

I'll tell ya what I don't believe...that this was a simple, or complicated, "ponzi" scheme. This is emblematic of the financial system we set up after Reagan. Calling this a brilliant scheme orchestrated by a single individual--to the extent the media is doing so--- puts me in mind of the so called lone gunman character in political assassinations.

[JerseyJeffersonian]

Colonel,

In the course of a little blog surfing, I encountered something of potential interest in the matter of Mr. Madoff that writes Eliott Spitzer into the picture. Former Governor Spitzer, in his previous capacity as AG of New York State, had been very interested in the shenanigans on Wall Street. It appears that his interest spilled over into his tenure as Governor as well, according to a post over at Crooks and Liars assembled from various sources:

http://crooksandliars.com/susie-madrak/there-bigger-story-behind-spitzers-do

It also appears that Governor Spitzer was taking an active interest in the questionable activities of the monoline insurance companies who insure the municipal bond market.

This could be worth keeping tabs on. The surveillance of citizens' financial transactions by the NSA and their transmittal to the FBI for shall we say, "reasons", also entered into the picture. The nexus of money and politics can be a messy place. Spitzer had not endeared himself to the Big Boyz in the past, and finding out about his indiscretions was of course a godsend to those fellas. Listening to Little Eliott, like listening to Little Bill, gives 'em a stick with which to beat you.

[NYIrish]

My take on this:
1) The D.A. got snookered by Madoff's lawyer who had the sons turn the father in. The sons were party to the crime; the father is taking the fall for them.
2) When the dust settles,it will be shown that the endemic use of "FTD"s (failures to deliver) and naked shorting of equities on the NASDAQ will be at the heart of Madoff's scheme.

Leila,
You'r absolutly right concerning the provinciality of New Yorkers, little has changed since Saul Steinberg published his "View of the World from 9th Avenue" fifty odd years ago in the New Yorker. And any New Yorker of a certain age and discernment can tell you as well, that the City today bears no comparison to itself fifty years ago, not civilly , and definitely not culturally.

[charlottemom]

While we're all discussing Madoff's magnificant heist, remember that Bernanke and Paulson operations are also largely unregulated, unsupervised and have access to much, much more money. Hence, we're all Madoff investors now.

By the way, I think NYC a unique and special place, with so many facets. I loved living there for 10 years. But really, its sub-cultures, residents, ways of life are so different from the rest of America that it's largely an aberration (as are DC, Hawaii, Alaska, by the way). The book Nine Nations of North America which describes NYC and its uniqueness (i.e. aberration)

[C]

Look at some of Madoff's clients: HSBC, Royal Bank of Scotland, Banco Santander, BNP Paribas, and so on. These are some of the most ppowerful financial institutions in the world. It seems unlikely that they, and their ilk, could've been taken in so easily, when they basically have run the system for decades, a system that is now unraveling at ever greater velocity. Given that almost everybody is now losing as the system melts down, perhaps what we're really seeing here is a ponzi scheme within a ponzi scheme.

[Anon AF]

Chicago corned beef is better. If you're ever there, try the Vienna Beef factory cafeteria (Fullerton and Elston?). Chicago's hot dogs and pizza also outstrip its "competitor" to the East. Hopefully with Obama, the culinary virtues - at least the common ones, leasted above - will acquire greater respect and attention.

As for its political culture and/or scandals, I have no great insight or knowledge. That said, understandably, perhaps Obama's staff, with a disproportionate number of Chicagoans (Emanuel, Axelrod, Duncan), will distinguish itself.

Regards
Anon AF

[zanzibar]

Charlottemom is on to something here. While the corporate media focus on the new shiny object of the Bernie deceit, the on going heist by Hanky & Bennie is well "hidden".

And the other heist by Wall Street titans will be quietly swept under the rug.