Maybe Ramalinga Raju put it more pithily ? he was riding a tiger, he just couldn?t get off and he didn?t mean any harm. But Bernard Madoff?s defence has been the same ? he got onto the Ponzi track innocently, he was giving people millions back, then he couldn?t, then he tried to work a way out, then he kept sinking deeper, and he just couldn?t come up for air. He meant well.
Both scandals broke around the same time. Raju still hasn?t been tried in court while Madoff has been sentenced to 150 years in prison. We haven?t heard of any books about the Satyam scam while around 20 Madoff titles have been announced or published. It is safe to conclude that a) wasting the head start gained by Raju?s glorious turn of phrase, Indian authors/publishers remain a sluggish lot compared to their American counterparts b) ditto for the justice systems.
Many of the aforementioned books may be opportunistic and worse. Erin Arvedlund, however, has been following the man for years. She writes about first hearing about him in the spring of 2001: he was the hotshot of the hedge fund world who was consisting delivering 15% returns irrespective of market fluctuations. But unlike George Soros and the like, Madoff wasn?t showing up in the usual databases or magazines. His investors, most of them staying loyal through decades, had been advised to maintain discretion about who was managing their money. Skeptics would only whisper about how they couldn?t fathom his investment strategy. Madoff himself brushed off the details, telling Arvedlund they were proprietary. When she outed the doubting Thomases in a 2001 article in Barron?s, she found it made for great watercooler fodder but didn?t put Madoff on the block.
Everything about Madoff and his wife Ruth shone like gold when they attended her 50th high school reunion in November 2008, just a month before his arrest. But the Ponzi scheme was haemorrhaging by then, with the Great Recession impelling panicked withdrawals. That month, Arvedlund points out, money manager Ezra Nerkin withdrew $2 billion, Los Angeles broker Stanley Chais withdrew $1 billion and hedge fund investor Sandra Manzke withdrew $300 million. Madoff turned to his earliest and most trusting investors to stem the bleeding, getting $250 million out of Carl Shapiro. Back in the seventies, when Madoff?s futuristic embrace of technology ? promising to make trades and deliver securities in three days at a time when everything on Wall Street was done manually and recorded on paper ? had lured Shapiro on board, that had in turn induced other fortunes to follow.
In the eighties, Madoff automated his trades with computers before most Wall Streeters grasped the import of electronic trading. Under his leadership, the defunct Cincinnati Stock Exchange closed its physical trading floor and turned electronic. As Arvedlund says, Madoff took the old jalopy and turned it into a starship. He also broke new ground by paying customers to trade, again exploiting a technological head start to more than offset the amount paid to customers. But that advantage whittled away over time. To quote Arvedlund at some length: ?Once he started using significant amounts of incoming dollars to fund payouts to prior investors, there was no turning back. He hadn?t invested the money, so it wasn?t making any gains. This meant that he needed more new ?investors? whose money he couldn?t invest either, because he needed it to pay off the earlier clients who were expecting a return on their ?investment.?? Thanks to the Great
Recession, that just wouldn?t work anymore by 2008 end. So Shapiro, in loaning money in December, was a stooge. But it?s hard to rustle up sympathy for him. He had been demanding and collecting returns as high as 900% since the 1980s.
Michael Moore has astringently taken to task the Madoff victims who never really wanted to ask what it was that was making their money grow on trees: ?They were afraid they might find out it had nothing to do with gardening.?
Many of us are more inclined to sympathy for billionaire losers. Some of them comported themselves heroically. Take one fellow who called Madoff god. Elie Wiesel, a Nobel winner and Holocaust survivor, finds himself a victim again, at the hands of a Jewish financier. His charitable foundation had $15.2 million under management with Madoff. Yet, it hasn?t bowed to bitterness, stating: ?The values we stand for are more needed than ever … We shall not be deterred from our mission to combat indifference, intolerance and injustice around the world.?
Finally, although Madoff is set to spend his life behind bars, Arvedlund underscores why the justice system needs to chase down others as well. Echoing Raju, Madoff has claimed that the crime was his and his alone. His wife has claimed betrayal and confusion. But the day before Madoof turned himself in, she withdrew some $10 million. Then there are the sons and others who must have colluded with Madoff over the years, not to mention SEC officials who were negligent at best. Every time the SEC left Madoff with a clean bill of health, some dupe paid for it a million times over.