In the wake of his sudden 'shock horror' downfall in 2008, masses of critical material was suddenly produced on the subject of Bernie Madoff. Yet ironically, what was labelled by the media as, 'The Scam of the Century,' had actually been instigated in the previous century; for in the 20 years of its existence prior to 2008, no mainstream media outlet had begun to investigate, let alone expose, Madoff's obvious Big Lie. Furthermore, it was an open-secret on Wall St. that Madoff was a latter-day Charles Ponzi, who first preyed mainly on his own Jewish community with whom he socialised in New York and Florida. It was no coincidence that many Wall St. insiders had always avoided Madoff like the plague. Despite repeated warnings, senior US Securities and Exchange Commission agents not only failed to put an end to Madoff's Big Lie, they flatly refused to begin to inquire into his criminal activities. The useful idiots at the SEC whose willful-incompetence made them complicit with Madoff, were almost-exclusively lawyers with no practical experience of trading, or of Ponzi schemes for that matter. Since his downfall, there have been various documentaries and dramatised representations showing Madoff's pretence of affinity with both his prospective victims and certain 'regulators.' For obvious reasons, various victims and commentators have concluded that dark forces must also have been been at work, because what Madoff had been doing was so blatantly obvious.
Perhaps an even more-disturbing explanation of these matters is that, completely contrary to what many people still prefer to believe, financial/trade regulators and specialist law enforcement agents, aren't employed to identify, and protect the public from, fraud. Far from it, for their suspiciously-vague remit has been concocted by legislators (and lobbyists), who evidently, have been far more interetested in maintaining confidence in the overall financial system. However, this short-sighted approach has actually had the reverse effect to that which was apparently intended. To illustrate the self-defeating, flawed logic at play here, a comparison can be made with the sports-bookmaking industry, which has generated huge revenues for governments via taxes on betting and on licensed bookmakers' profits. Consequently, if widespread cheating (event fixing) were to be publicly-revealed - resulting in the loss of public confidence in the honesty of popular sports - the revenues gathered by governments from licensed betting might collapse. Thus, the financial system and popular sports like horse racing have both come to rely on maintaining the reassuring belief that they are so tightly-regulated that extensive cheating cannot possibly thrive. For this dubious reason, those tasked with the regulation of both have felt obliged to turn a blind-eye to cheating. Cheats (above all people) understand this.
Thus, the more-extensive, and flagrant, cheating becomes in any confidence-based market: the more prone to ignoring it, the market's (supposed) regulators will become, whilst the more wealthy, and emboldened, the cheats will become. Of course, for centuries it has been observed that, 'if you pass any law, but then fail to enforce it, you effectively-authorise the very crime you were apparently seeking to prohibit.'
Thus, in 2007, the Big Lie was still alive, and growing, that Bernard L. Madoff was an admired and respected investor, popularly-known as 'The Wizard of Wall St.,' who for years had been successfully-managing the world's largest hedge fund - totalling $50+ billions. You could even find Madoff (and his company) on Wikipedia, where his grandiose comic-book fiction was falsely-presented as established fact supported by many reliable independent sources; whilst all accurate evidence-based analysis (no matter how obvious) would have been systematically purged from Wikipedia as, 'original thought/ research.' Until 2008, an army of highly-paid attorney's would have pounced on anyone prepared to risk public ridicule, and financial ruin, in an attempt to expose Madoff's 'Big Lie.'
However, as we all now know, Madoff was secretly just another sociopathic-charlatan (one in an ever-lengthening-line of such world-class liars). Yet unoriginal economic-alchemists like Madoff, should not be that difficult to detect; for they have all pretended moral and intellectual authority whilst peddling essentially the same ('far too good to be true') financial fairy story.
The Madoffs of this world always claim that they have access to a secret knowledge which can enable you to earn money, but first you have to trust them with some of your own money. This enticing fiction can be made to seem like fact, so long as fresh victims can keep being found and the supply of stolen money keeps rolling in. Madoff's colossal and outrageous version of what is popularly-known as a 'Ponzi Scheme,' eventually attracted approximately 37000 bedazzled 'investors,' including certain A-list celebrities (or rather the financial advisers to certain A-list celebrities).
In truth, Madoff did have access to a secret knowledge, but this was the fact that his so-called 'hedge fund' was a complete fake. The impressive supply of stolen money that kept rolling into Madoff's control (and which falsely-placed him high on the list of America's richest citizens) had only come from his victims, because in all Ponzi and pyramid schemes (no matter how cunningly they have been disguised), the universal identifying characteristic is that victims have been tricked into buying (infinite) shares of their own (finite) money.
Madoff's 'Big Lie' was only uncovered when the financial crisis hit in 2008. At that time, too many of his victims suddenly needed to cash-in what they believed to be their 'growing secure investment.' For a while Madoff managed to hide the truth by continuing to do what he had always done (pay out some of his 'investors'), but as his pile of stolen money rapidly-dwindled, he began to realize that the game was up. On paper his fake hedge fund was massively-profitable, but in reality it was insolvent to the tune of tens of billions of $.
Faced with exposure, public humiliation and jail, Madoff broke-down and tearfully confessed the truth to his two sons. Shocked and confused, they had little idea what to do, except seek qualified-advice from one of their father's own attorneys. However, the attorney himself initially found it difficult to believe the truth, because he too was one of Madoff's bedazzled victims. Indeed, he briefly preferred to believe that his financial genius celebrity-client must have lost his mind. However, reality soon dawned and the attorney instructed Madoff's sons to go to the relevant authorities and turn their father in. Ironically, the situation which they reported to FBI agents in New York, again initially seemed to be too fantastic to be true.
Prior to his arrest, Madoff was widely-reported to have failed in a suicide pact with his wife, but there is little independent evidence to confirm this.
To be perfectly honest, it beggars belief that Madoff's crimes remained undetected for so long, because, once you fully-understand the absurd, underlying nature of a Ponzi/pyramid scheme, all that was required to determine reality, was simply to verify whether Madoff had actually been making the profitable trades that he claimed to have been making. Laughably, the briefest-examination of his company's actual bank records would have revealed that the size and source of Madoff's company revenue was not at all what he had been pretending on the thousands of comic-book 'account statements' he'd been busily churning out over the years. However, it seems that no one ever thought to make this most-basic of common-sense checks. The interested parties were so in awe of the 'Wizard of Wall St.,' that they were unable to demand that he produce independent quantifiable evidence proving that he was not a conman. Evidently, Madoff was under no common-sense (legal) obligation to declare such evidence.
Another major factor facilitating Madoff's crimes was that he was an international celebrity whose expert opinion on financial matters was regularly sought by journalists. He was also noted for his public gifts to charity. Indeed, Madoff operated in plain sight right under the noses of journalists, financial regulators and law enforcement agents. Yet, for two decades, although the 'too good to be true' aspect of Madoff's financial fairy story was questioned a couple of times in obscure press articles, officially, he never faced any investigation. The laws he was breaking on a daily basis, were never enforced.
Even when a detailed evidence-based analysis was handed on a plate to senior agents of the Securities and Exchange Commission (revealing exactly what Madoff had been up to), no investigation was launched. The well-informed urgent warnings of an independent financial fraud investigator and analyst, Harry Markoplos (and his associates), were mysteriously buried for 9 years. During this time, Madoff's Big Lie was habitually presented as the truth by numerous unquestioning mainstream commentators.
As previously-explained, all the apparently profitable stock market trades which Madoff kept telling the world he was making, never actually took place. However, the wise monkeys at J.P. Morgan Bank who handled Madoff's accounts and who, therefore, must have seen with their own eyes, and heard with their own ears, that their financial-genius client wasn't actually buying, or selling, the mountains of stock which he claimed, never once approached the authorities to say that there was something radically wrong. It is now a matter of public record that Madoff used J.P. Morgan Bank to launder almost all of the billions of dollars he stole by means of fraud. Subsequently, J.P. Morgan was merely accused (as a corporate structure) of not reporting any concerns about (what turned out to be) a criminal client. Without accepting any fault, in 2014, J.P. Morgan was absolved of all further liability, after agreeing to pay $2.6 billions to settle all outstanding claims (government and private) connected to the bank's previous participation in thousands of Madoff's crimes. J.P. Morgan also promised that, henceforth, its own staff will not to be so conveniently deaf, dumb and blind, when the bank is being used to facilitate fraud.
Whilst it was an undeniable fact that employees at the SEC hadn't actually been doing any regulating in the case of Madoff, the SEC's Chief Legal Counsel subsequently made the nonsensical claim that his agency was doing its job, but was obliged to follow procedures laid down by legislators. What this dunce with a law diploma was actually admitting (albeit indirectly), was that the SEC was worse than useless, because its agents chronic failure to stop Madoff had actually made it appear that his 'Big Lie' was the truth. Thus, when Madoff was finally forced to confess to his crimes, the leadership of the SEC still refused to admit that they were at fault.
Perhaps that most stomach-churning evidence perfectly-illustrating how chronic regulatory failure had been exploited by Madoff, came when he was filmed performing his reality-inverting act to an audience of wide-eyed believers (including some well-known financial journalists). The irony of what Madoff said was exquisite. In response to a suspiciously-convenient question, he assured his audience that the rules governing Wall St. had become effectively impossible to get away with breaking, because the stock market was so tightly regulated. Of course, Madoff understood the laughable reality of the situation better than anyone.
Thus, prior to 2008, to the average person, let alone to his victims, the full-truth about Madoff's criminal enterprise, would have been completely unthinkable.
- How could all these apparently sophisticated observers be so willfully-blind, and/or lazy, and/or gullible, and/or incompetent, and/or corrupt?
- How could such an outrageous falsehood be allowed to exist officially-unchallenged for so long and, thus, attain such colossal proportions?
Bearing the above in mind, today it is still officially-accepted that:
'Multi-Level Marketing (MLM) is a perfectly legal form of commercial enterprise (part of the age old Direct Selling Industry) involving approximately 130 millions sellers around the world who are contractors of hundreds of MLM companies.'
In reality, each year for several decades, tens of millions of ill-informed temporary de facto slave recruiters have continued to be quietly churned through these 'Amway' copy-cat cultic rackets. Just as in the somewhat smaller Madoff scandal, the number of persons who have been, and who remain, sliently-complicit with the Big 'MLM Income Opportunity' Lie, is vast. Again the damage being caused here, has not just been financial.
David Brear (copyright 2023)
"the more-extensive, and flagrant, cheating becomes in any confidence-based market: the more prone to ignoring it, the market's (supposed) regulators will become, whilst the more wealthy, and emboldened, the cheats will become. "
ReplyDeleteThis makes perfect sense.
Thanks.
DeleteMy analysis makes sense in the context of my article, but when read in isolation, it requires a slight addition for it to make sense. Thus:
The more-extensive, and flagrant, cheating becomes in any confidence-based market: the more-prone to ignoring it, the market's (supposed) regulators will become (so long as their overriding remit is: 'to protect confidence in the market'), whilst the more-wealthy, and emboldened, the cheats will become.
Of course, this depressing analysis begs the question:
Who exactly was able to foist this self-defeating restriction on regulatory agencies?
The answer being: corrupt, and/or stupid, and/or lazy politicians wielding power, but who have allowed 'lobbyists' to write the rules.
What do you think is the solution?
DeleteIn an ideal world, honesty, and a genuine desire to uncover the truth and protect the public, amongst the senior ranks of law enforcement, would be the solution.
DeleteUnfortunately, so long as senior law enforcement agents, and their political bosses, know that they personally can never be held to account for failing to protect the public from the Big 'MLM' Lie, then this shameful situation will persist.
That said, if all law enforcement agents had been paid based on their achievements (i.e. their agencies' prosecution/stolen money recovery rates), then I don't think the Big 'MLM' Lie would have survived as long as it has.