Interesting Thesis

In a (sort of) obituary for Bernie Madoff, we learn that in interviews following his conviction for runing a Ponzi scheme, Madoff believed that everyone on Wall Street knew what he was doing.

Certainly, the pattern of financial players of cashing out early before the game of musical chairs stopped is suspicions:

Bernie Madoff died today, and he leaves behind a legacy of financial wreckage that stretched around the globe. His Ponzi scheme was the largest in history, wiping out some $65 billion in gains, albeit paper gains. The longevity of his scheme — decades — was breathtaking. He was without a doubt one of the most accomplished liars in history. Yet perhaps it takes a con man to know how the system cons us all. And Madoff understood the financial system as only a financial crook can. One thing he was certain of: They all knew.

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I spent hours talking to Madoff during his years behind bars, and more hours listening to tape of his depositions from prison, exclusive material which offered insight into his crimes for my podcast. To the extent one can get into the mind of the greatest con artist of the age, I felt I knew him, or at least certain things about him. And I came to believe that Bernie Madoff was, in his way, a truth-teller. Madoff understood the workings of the financial system as few others did. Clearly he used that knowledge to sustain his con. The financial system’s attitude toward him was “willful blindness,” he said in one deposition.

When he was caught in 2008, as the financial crisis gripped America ever tighter, Madoff became a poster child for the misdeeds of that entire universe. The banks had pushed us to the brink of national ruin. But theirs was a complicated fraud, including such arcana as securitized bonds and overleverage. Their crimes weren’t easy to understand. Madoff, on the other hand, looked you in the eye, shook your hand, and then cut the shirt off your back. That was straightforward.

And so a narrative evolved. The systems, financial and to some extent judicial, cast Madoff as a rogue operator, a lone bad apple in an otherwise forthright arrangement. We were all hoodwinked, was the going line. He was that good.

Nonsense. The financial system enabled, weaponized, and profited handsomely from Madoff. Some hedge funds he did business with were nothing more than sales operations. They lured in clients with promises of due diligence and exclusive access. “I made them hundreds of millions,” Madoff said. It was true. And for doing what? Some simply took money from investors and handed it to him. For their trouble, they took a percentage off the top. They promised that they examined the details, but that simply wasn’t true.

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Did the small investors know? Most of them didn’t. They trusted their financial advisors, those connected with institutions such as Banco Santander, who promised to keep an eye on Madoff’s operations.

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Of course, he bears a large share of the responsibility for defrauding investors, although he liked to shrug that off. No doubt the notion of Madoff as another victim of the system is repulsive. But without the cold-blooded support of large financial players, Madoff would have been a local phenomenon, a tragedy limited in time and scope.

We need to make it easier to prosecute Wall Street malefactors, and we need to make it easier to claw back their ill gotten gains from them when it all goes pear shaped.