The big con
A baseball-hatted man dressed in black is walking with a subtle degree of swagger–cocky. He is being escorted into a building while being hounded by photographers — it’s an aggressive scene. Suddenly, he nudges a photographer and he gets jolted back — hard — by another man with a camera. It was an aggressive assault but no one seemed to notice — no one seemed to care. The man with the swagger was returning to his $7 million residence after a court hearing. He looked smug as he was assaulted on camera. That shove would become a metaphor for an angry mob, and the video clip that was described foreshadowed a severe reckoning for a man named Bernie Madoff. There would be no redemption for this guy.
“Man is incapable of understanding any argument that interferes with his revenue.” — René Descartes
Madoff pulled off the simplest hustle known to man: a Ponzi scheme. This simply means we give our money to an investor with the hope that our money will work for us and earn some interest. Or more succinctly, someone will say, “Give me 10 scoots, and I’ll give you back 15 scoots — later.” That’s in a nutshell what Bernie did to the tune of $50 billion or thereabouts. And, people were lining up to hand over their money. Nota bene the Descartes quote.
“A fool and his money will soon part.” — Ancient proverb
The elements of a Ponzi scheme (named after Charles Ponzi) are very basic. First, one needs some credibility. Bernie had established that on Wall Street. Secondly, one needs a list of clients who also have credibility: celebrities, politicians and other smart money people. Thirdly, and most importantly, one must play to the greed in others. It’s that simple. All one needs after all that paper is generated is to be able to pay off investors who want to cash out. It becomes a borrow-from-Peter-to-pay-Paul thing. The greed card was well played by Madoff. Investors were stacking serious dividends, and rather than cash those in they let their money ride. Why not? The word around the campfire was that Madoff was the man with a plan, and a guy clearly in the know — why mess with success?
A very bright guy named Harry Markopolus was on to Madoff. He was a forensic accountant, a financial analyst and a fraud investigator who was adept at reading the market’s nuances. Furthermore, he was good at math: Differential calculus, integral calculus, linear algebra and normal and non-normal statistics. He began the unstrapping of Madoff’s scheme. He had warned the Securities and Exchange Commission on five occasions that there was something wrong with Madoff’s market performance — the SEC dismissed his claims. The stock market has peaks and valleys; however, Bernie Madoff’s performance just seemed to go up and very rarely went down. Markopolus’s position was this performance was either insider trading, or a Ponzi scheme. (You gotta love the smart math guys.)
Madoff’s investors had ridden out a couple of recessions and stayed the course. Then, the market took a serious dive and there was a major run on the banks. Madoff couldn’t cover the people who were bailing. This was the beginning of the end for the former chairman of NASDAQ — Peter had no money to pay Paul. Madoff had no scruples regarding whose money he would take. He’s a bad guy.
Back in those heady, salad days, my dad and I would discuss the stock market. He told me people actually think this kind of expansion would go on forever. When I was younger, my dad explained the old Yankee axiom regarding money. “You don’t eat the chicken, just eat the eggs. Save your money. Then, if you want to, spend a little money before you die,” he said. Moreover, he said, “If something looked too good to be true, then it probably was.” He told me to buy solid stocks for the long haul. In his view there was no easy money — you work, earn, save, and invest wisely. He was an old-school guy. Once I met with a financial advisor. This guy had a pinstriped suit and shiny black shoes, and he talked me into a soothing state of monetary bliss — a smooth talker. He almost had me until he said I could be looking at earning 17 percent on my money. I figured if that was true, then why wasn’t there a line of people in back of me wanting in? It sounded too good to be true. Consultation over.
Over time, certain stories resonate in the collective psyche of a people. There are two productions that deal with Bernie Madoff. Richard Dreyfuss and Blythe Danner starred in a version, which aired on ABC. I liked it. Additionally, HBO is bringing out the big guns for a version. It will star Robert De Niro as Madoff, and Michelle Pfeiffer as his wife, Ruth. We want to know why there are two productions of this guy’s story embedded in these entertainment venues. The answer is simple. This guy hurt many people, and we can’t forget what he did — ever. Stories help us understand the world and its makings. We need these stories about a guy who willfully took people’s money, which was then dispatched into the ether — gone.
Finally, there are two more stories currently in play that deal with scheming characters whose moral compasses are way out of whack. Showtime’s “Billions,” and the movie “The Big Short” — a recent Oscar contender for Best Picture — are like Madoff’s story. These are cautionary tales of what not to do with our nickels so we won’t get caught up in The Big Con.