Bernie Madoff's $50 Billion Fraud thru country clubs

[Mike Golden]

David Schmidt,

I will make one more probably futile attempt to explain this to you.

My original comment was a response to Mike Malone's request for an explanation of why Jews could invest with Madoff and take him at face value since his Jewish friend wouldn't provide the explanation.  I provided an accurate explanation based on the culture and my life experiences.  You are welcome to accept it or take issue with it, that is your choice.

No one has condone Madoff's actions nor has anyone made any indication that someone should not take personal responsibility for their own actions.  I had a good friend rip me off 15 years ago for almost $200,000 with virtually the same pretext and have never blamed anyone but myself for my stupidity, as I am sure most of the people who lost money with Madoff are doing today.  They will pay the price for the rest of their lives, there is nothing that can be done to change that.

The topic of this thread is a $50B fraud perpetrated through relationships at a variety of country clubs, almost all of which are predominantly Jewish clubs.  One of them mentioned, Seawane, was my in-laws club for 25 years so I thought responding to Mike Malone's question was relevant.  I am sorry you have chosen to misinterpret these comments out of context, particularly since several other knowledgeable members of GCA have agreed with me.

[Willie_Dow]

And now it is the liberal media going after the Irish Miracle, The New York Times, Sunday Business section putting blame on the entrepreneur, with little mention of the Irish government which announced a $7.5 billion bank bailout taking majority stakes in the country's banks, following a guarantee on all bank deposits.

[Mike Golden]

prior to the Holocaust, David, Jewish money, property, businesses, and assets were all confiscated by the 3rd Reich.  If you don't think that influenced the thinking of the generation brought up during this period and made them less trustful of both government and financial institutions then you have sadly missed the point.  I know you will continue to belabor this point and ignore the context of my original remarks but enjoy yourself, I have a tee time this afternoon.

[RJ_Daley]

Thank you Steve Shaffer for posting that very illuminating and I think important article.  Perhaps everyone going into an industry that has a fiduciary responsibility, and everyone entering a relationship with a fiduciary, should read that article because it is an insight into the psychological workings of the art of the scam.  It is a human emotional roadmap to how the process of being swept into the act or conspiracy of defrauding or being defrauded happens.  

I also think it is what I've been driving at for ad infinitum in all these argumentative dust-ups with Dave and some others, when I keep going back to a concept of a new ethic that needs to take hold in this country.  Gullibility, blind faith in the executive classes by shareholders (or not enough shareholder or democratic control in voting their compensations rather than administration by a cabal of inbred compensation committees, and lack of transparency and oversight) are the factors that make for situations that spawned Madoff, and so many other abuses of the investor class.  The same process works in the political arena, IMHO.  A collective ethic to be aware and respect each other within the social value framework of old fashion honesty and compassion is needed.  

'How quiant'... perhaps the Darwinian market shall rule, and win at all costs mentality crowd will say, as these scandals keep popping up and all manner of arguments will naysay that the remedy is in reform of our collective ethical natures.  

I have understood the heart of Mike Golden and other's comments and observations from the start regarding great historical events (like the depression, WWII carnage upon whole classes and ethnicities, and the actual jewish holocosts) that move a culture or ingrain a mindset for generations.  Masses of people in various social, ethnic, political, and economic groups or classes become vulnerable to being preyed upon by the manipulators who always use these communal relationships shared in those crisises with a cultural group to capitalise that emotional, social peer confidence collective behavioral system for unethical advantage, political or financial.  

Dave, I can't understand how you keep rising up to these right wing  argumentative positions that rely on prescriptions that have and are clearly failing the people and you seem desparate to challenge so many people's real life experiences.  Mike Golden knows of what he speaks from real life.   By the same token, I don't think you have enough sympathy for the real life situations of so many people that are in serious trouble in this country for reasons of what was an ongoing ethical failure whereby you will revert to denial and defense of what was a governing and financial/economic policy driving mindset that is utterly failed.  I just don't think that status quo on those values will do at this point...

thus in this thread, your insistance on calling a question on Mike about cultural and collective psychological effects of what you have wrongly focused on in the micro sense of the "holocost" that Mike used in the macro sense, is somewhat rediculous, IMHO.  

[Steve Lapper]

   Btw... As a Jew, I'm not sure who has embarrassed me more in 2008, Bernie Madoff, Alan Greenspan or Bob Rubin???

Steve

You forgot Madonna....

Rich

Rich,

  Nah!!  She got what she deserved...Mr. May.... A-Rod!

Willie Dow,

   With all due respect, the "liberal media NYT" places the real blame not at the feet of Mr. Dunne (though  his is the "name & face"), but instead on the doorsteps of the Irish Government and banks. A close read reveals it was their specific inability to measure or moderate risk that threatens. It uses the developer Dunne to illustrate just how Ireland misplaced their long-term prosperity with short-term aspiration (a mistake, btw, that we on this side of the pond practice regularly!).


  It is in today's issue of that bastion of liberal, no-good, downright threatening (sic) journalism that the best observationalist of today's financial world, Michael Lewis teams up with a very, very smart guy (biased as he is a friend) David Einhorn to pen a rather incredible  Op-Ed piece, "The End of the Financial World as We Know It" (hum the REM chords accordingly). Unlike so many other scribes', Lewis & Einhorn actually make solid recommendations for repairing our broken financial world, all based on very real common sense (might be difficult for U. Chicago-school free-marketer's to stomach).

   Regardless of your political or capitalistic bent, this should be required reading for everyone who wants to really understand the macro and micro of today's financial morass. Enjoy!


http://www.nytimes.com/2009/01/04/opinion/04lewiseinhorn.html

[RJ_Daley]

Show me one person, old or young, actual survivor or relative of survivors, who thought to themselves "hey, I gotta give money to Bernie because of the Holocost".  Just one.  It doesn't exist.  It's an after-the-fact pseudo-rationale, at best.

I doubt they thought "I gotta", they thought, "I want to, because he is part of me and us and we all know what we went through, he'd never swindle me".   Bernie preyed and capitalized on that notion.  That is real, Dave. 

I don't know your wife's situation in terms of what class she came from in Iran.  Was she from the small ruling class that had everything locked up and cornered on the market, or the vast underclass that had nothing?  How big or important was the bourgeoise.  My limitted understanding is that there was no real democratically loving middle class there, just a fascist theocrocy leaning radical crowd and an arrogant wealthy crowd.  I may be wrong... 

I do think or have the impression that much of your defensive or argumentative go-to nature is right wing and culturally developed mindset, that always keys up on buzz words like holocaust, liberal, regulatory reform, taxation, transparency, shared social burden sharing, etc.  We can always count on you to pop up and try to cry down any notion that in all those areas, where the ramifications of status quo are clearly not working, you'll keep arguing that they should work "theoretically" - if only all those that are victims would only just go away.  Well, they aren't going away...

[Willie_Dow]

Steve:  You're "close-read" analysis was six lines wide on a page and one half discussion about Mr. Dunn.  Where is evidence of the corrective forces the liberals failed to create while opening the door to chaos ?

They wanted a Bush failure, and they did us in accordingly.  How's that for a "Ponzi Scheme" ?

[Bob_Huntley]

I don't know your wife's situation in terms of what class she came from in Iran.  Was she from the small ruling class that had everything locked up and cornered on the market, or the vast underclass that had nothing?  How big or important was the bourgeoise.  My limitted understanding is that there was no real democratically loving middle class there, just a fascist theocrocy leaning radical crowd and an arrogant wealthy crowd.  I may be wrong... 

You are wrong.

No matter if one is rich, poor or in between, being deprived of ones assets, no matter how big or little, is a searing experience. It is one thing to have it done by the State but  done by a trickster is the investors gullibilty and fault.

Bob

[Mike Golden]

I don't even know why I am bothering to post anymore about this, but what I said the first time was that many of the types of people who invested with Madoff did so in large part because they trusted him and distrusted financial institutions.  I attributed at least part of this distrust to the DEPRESSION, WWII, and the Holocaust.  If you have never spoken with or listened to someone brought up during the Depression then there can be no understanding. 

The response was not a question, it was an accusation that I was blaming Hitler for people losing money with Madoff, which is complete bs.  If you can't understand how someone's value set is influenced by significant outside events in your lifetime then we live on different planets, my life and attitudes were influenced in major ways by the assasination of JFK, to a lesser extent RFK and MLK, Jr., the riots during the '68 Democratic convention, the Vietnam War, and 9/11.  That value set made it easy for them to 'give it to Bernie' because they could trust him.  It doesn't mean it was the right thing to do and doesn't allow them to blame their backgrounds for what happened.  IT IS JUST AN EXPLANATION OF HOW SOME OF THEM COULD GET SUCKERED IN, PERIOD.

Madoff is a crook who deserves to be punished severely, I hope all of can at least agree about this and put this to rest. 

[mike_malone]

I don't think Irish-Americans have any particular cultural mores that affect their investing habits. But, I sense that there is more of a cultural thing going on in the Jewish community that made it vulnerable to this scam.


  Some ideas have been explored here about trusting certain people. That makes sense.

    I wonder if the consistent returns were more attractive to this community of investors as well.


   

[Bill_McBride]

   Btw... As a Jew, I'm not sure who has embarrassed me more in 2008, Bernie Madoff, Alan Greenspan or Bob Rubin???

Steve

You forgot Madonna....

Rich

Rich,

  Nah!!  She got what she deserved...Mr. May.... A-Rod!

Willie Dow,

   With all due respect, the "liberal media NYT" places the real blame not at the feet of Mr. Dunne (though  his is the "name & face"), but instead on the doorsteps of the Irish Government and banks. A close read reveals it was their specific inability to measure or moderate risk that threatens. It uses the developer Dunne to illustrate just how Ireland misplaced their long-term prosperity with short-term aspiration (a mistake, btw, that we on this side of the pond practice regularly!).


  It is in today's issue of that bastion of liberal, no-good, downright threatening (sic) journalism that the best observationalist of today's financial world, Michael Lewis teams up with a very, very smart guy (biased as he is a friend) David Einhorn to pen a rather incredible  Op-Ed piece, "The End of the Financial World as We Know It" (hum the REM chords accordingly). Unlike so many other scribes', Lewis & Einhorn actually make solid recommendations for repairing our broken financial world, all based on very real common sense (might be difficult for U. Chicago-school free-marketer's to stomach).

   Regardless of your political or capitalistic bent, this should be required reading for everyone who wants to really understand the macro and micro of today's financial morass. Enjoy!


http://www.nytimes.com/2009/01/04/opinion/04lewiseinhorn.html

Steve, did you say "enjoy?"  You gotta be kidding!

[mike_malone]

Don't forget Joe Nocera's must read article in the Times Magazine entitled "Risk".

[cary lichtenstein]

There has been much discussion among our friends over the Madoff Fraud and the majority feel that "Greed" was the number 1 ingredient.

One of my friends was turned down twice by Madoff.

My sister was turned down.

Another friend passed in 2000 because he was making more in the market that year than Madoff.

Those are 3 people who escaped without a scratch, we know lots that lost everything, including their houses and cars.

[Chris Kane]

It amazes me how many otherwise intelligent individuals abandoned a most basic principle of investment, diversification, and have lost everything as a result.

The people I really feel for are the beneficiaries of charities who lost everything.  Again, poor management by the trustees, but innocent people will suffer.

[corey miller]

I suspect many of the charities hurt by Mr. Madoff and his investing prowess, were also the beneficiaries of much of his personal largess and felt compelled to invest because of these contributions.

[SL_Solow]

Shivas;  You know I don't usually post on topics like this. First it is clearly outside of the scope of this board and will almost inevitably lead to hard feelings.  Second, it touches on areas where I have some professional competence as I have been retained to unravel Ponzi schemes from time to time over the last 25 years and I am concerned that comments in a forum such as this may be used to the detriment of a client in some present or future proceedings.  Finally, with the recent turn in the conversation, my ethnic/religious background is impacted and, candidly, this is not a forum in which I generally choose to discuss matters of that nature.

However, because of what I view to be some significant distortions in your argument I feel it necessary to respond.  To get to the root of the problem let me make the central premise clear;  no one has suggested that the Holocaust (incidentally, while misspellings on the internet are generally excusable, the consistent misspelling of this event should be corrected) is the "root cause" of Jewish investors reliance on Madoff nor has anyone suggested that those investors are in anyway less responsible for their actions because of it.

The discussion was started by Tom Paul's reference to the book "Our Crowd."  While some of his references to the book are flawed (Tom the term "diaspora" has a very different meaning than that which you attributed to it) and while some of us might disagree with much of what the author suggested, even though our families were not in that social strata, Tom's general summation of the points contained in the book was largely accurate.  Thereafter Mike expanded by seeking to explain some of the factors that might have led to a mindset held by a certain segment of investors which would lead them to place inordinate trust on an individual such as Madoff and to suspend much of the ordinary caution that one might suspect they ordinarily exercised in financial affairs.  Among the factors cited for these somewhat older members of my faith was a whole panoply of events impacting on the Jewish people, foremost of which was the Holocaust, without a doubt the single largest influence on the "psyche" of our people in the 20th century.  At no point did Mike or anyone say that this mindset absolved any of the investors from their responsibility for having been duped.  It was simply an effort to explain how so many seemingly smart and successful people could find themselves victims.

Ordinarily I don't indulge in this type of "pop-psychology" from afar.  I think much of what Mike and others have said is interesting and may have some validity.  But I think there was much more at work here and none of this explains Madoff's ability to involve large institutional investors.  However, as I stated at the outset, I am not here to discuss the substance of the Madoff affair.  My sole purpose is to suggest that your exercise in sophistry is treading in very sensitive areas.  As you know, I am not afraid to go there in person or in print.  But when you do, you should be more careful to accurately state the views of the "other side".  Consistent misrepresentation of the other sides argument can lead readers to wonder why you want to continue the argument.  Sometime its fun to yank people's chain.  But not on a topic like this.

By the way, I agree with your analysis on the felony murder issue.  Way too big of a stretch.  As to losing the "house and car", some people overextended and became illiquid.  Even if this had been a legitimate investment that would have been a bad strategy but sometimes people do unwise things.  Like post on this topic.

[SL_Solow]

Shiv;  I've said enough.  If you want to talk offline, call me or we'll have lunch.  Sometimes it is wisest to back off. If you still think that Mike suggested that any of the factors he cited absolved anyone of responsibility for their acts I suggest you reread his posts.

[Patrick_Mucci]

prior to the Holocaust, David, Jewish money, property, businesses, and assets were all confiscated by the 3rd Reich.  If you don't think that influenced the thinking of the generation brought up during this period and made them less trustful of both government and financial institutions then you have sadly missed the point. 


Mike,

I used to think that, however, if that were true, you'd never see a Mercedes or a BMW in the parking lot of any of the Jewish country clubs where Madoff solicited investors.

When I've brought that issue to the attention of good friends of mine, they ask me if I've ever been to Israel and seen what cars are being driven.
I'm still at a loss to understand the disconnect.

[Mike Golden]

prior to the Holocaust, David, Jewish money, property, businesses, and assets were all confiscated by the 3rd Reich.  If you don't think that influenced the thinking of the generation brought up during this period and made them less trustful of both government and financial institutions then you have sadly missed the point. 


Mike,

I used to think that, however, if that were true, you'd never see a Mercedes or a BMW in the parking lot of any of the Jewish country clubs where Madoff solicited investors.

When I've brought that issue to the attention of good friends of mine, they ask me if I've ever been to Israel and seen what cars are being driven.
I'm still at a loss to understand the disconnect.

Patrick, it's generational, my parent's generation, who are mostly gone, had a distinct aversion to anything German.  Robert Klein even does a comedy bit about it on an HBO special regarding the time he brought his German girl friend over to meet his parents in the mid 60's.  I believe it's the whole chapter of a book he wrote several years ago.  The younger generations, which would be anyone from age 65 and less, clearly don't care nor do the current generations of Israelis.  I can't tell you how many times I heard my father in law, who was a member of Seawane for many years, say he would never buy a German car and would complain about anyone in the family who even mentioned it.

[Steve_ Shaffer]

And why do Americans buy Japanese cars in such numbers? After all, they sneak attacked/bombed us.

Many of my relatives did not care for my VW Beetle. It created conversation within the family.

Many Jews did not buy Ford products because of Henry Ford's virulent anti-semitism.

As Mike has said, it's generational.

[Patrick_Mucci]

Steve,

That was my point regarding Mike's post on cultural values.

[Steve_ Shaffer]

Good article in today's NYT:

THE GRAND FALLOON Kurt Vonnegut coined this phrase in “Cat’s Cradle,” and never did it have a more devastating application than in the Madoff scheme. In Vonnegut’s world, a grand falloon was a false association mistaken for friendship — two people from the same town, same university, same company meet somewhere and believe that coincidental connection has significant meaning. It doesn’t, no more so than belonging to the Palm Beach Country Club or the Fifth Avenue Synagogue did for those who used their proximity to Mr. Madoff to coax him into taking their money.

This is a crucial point particularly in opaque investments, from hedge funds to private equity partnerships: just because someone is a good golfer does not mean he should be trusted to invest your money.  Private bankers are forever telling their clients not to try to get into someone’s hedge fund just because you enjoyed their conversation on the course — or, worse, want to play with them again. Like taking care of your health, picking an investment adviser should be done with the utmost rigor. However much you’ve amassed over a lifetime doesn’t mean you can be any less careful: what took decades to build can disappear over night. Just look at the United States stock market: six years of gains were wiped out in 2008.

www.nytimes.com/2009/01/06/your-money/06wealth.html