Mad About Madoff

The Canadian Capitalist recently highlighted two terrific Vanity Fair articles about Bernie Madoff.  For those who weren’t watching CNN or reading papers in December 2008, Mr. Madoff operated an “asset management business” (hedge fund) that was actually the largest ponzi scheme of all time. He took massive amounts of money from rich people, famous people (like Steven Spielberg), and numerous charitable foundations.  Apparently people were desperate to invest in his fund.

The two articles, which details who Bernard Madoff is, as a man, from the perspective of his victims and his employees are great reads (normally the only part of Vanity Fair I’m interested in is the photographs of naked celebrities on the cover).  What surprised me most about him was that, according to these articles, he basically had no personality at all.  To his investors he was smiling, benevolent “uncle Bernie” and to his employees and family he was a bully.  He would be around clubs and organizations where rich people would beg him to take their money, but beyond living “the good life” the guy seems to be more of a shell than anything.  He wasn’t flirtati0us, didn’t take much interest in recreational pursuits (other than apparently cheating at golf according to Donald Trump), wasn’t a big drinker and wasn’t passionate about religion, politics or other topics of interest.  He basically existed to be a blank slate to keep money coming in, and hide what he was doing from regulators.

When this story first broke, I was visiting my parents and we were glued to the TV as more information kept coming out about it.  These articles paint a sadder story of people who have gone from being “ladies who lunch” to having to work (or move in with children) in their golden years.

Some are painting Madoff as a devil who set out to defraud his family, friends and community.  I don’t have anything to base this on, but my feeling is that the whole situation probably evolved gradually.  He might have been running investments profitably at one point (in the 80’s or 90’s is the speculation), got used to being viewed as a “market genius”, took a risk that didn’t pay off, then instead of being upfront, he hid the loss.  Perhaps he was hoping to get back “in the black” then move forward again, or maybe he just couldn’t take the blow to his ego that he’d messed up.  At a certain point he must have thought “I’m never going to be back in the black, but I’m not a young guy, maybe I can keep this under wraps until I die then leave it for other people to unravel”.  One Warren Buffett quote I like is “You only find out who is swimming naked when the tide goes out.”  The recent market drop was the tide that went out and showed that Bernie had been swimming naked.

Some people have compared Madoff to Hitler (many of his investors were rich Jewish families) which is insulting.  Comparing someone who defrauded a bunch of wealthy people to a man who attempted the systematic genocide of a race of people is offensive.  Godwin’s Law certainly applies.

There has been a number of racist perspectives on the whole deal as well.  Some anti-semites have apparently been happy that the whole situation occurred:  both for discrediting Madoff, who is Jewish, and his victims (many of whom are Jews as well and often very committed to philanthropy).  This is a blatantly ugly attitude, however some Jews have also made very racist statements claiming that “it’s especially bad that Madoff did this ‘to his own people'”.  Come on!  There are good people and bad people of all races, genders and religions.  Thinking that someone is going to be a good person because they’re Jewish, or not take advantage of the Jewish community because they’re a Jew is ridiculous and naive.  Madoff is a man who behaved badly.  His ethnic / religious identity has nothing to do with that.

Beyond being more sympathetic to Madoff than most (although I don’t think he’s Hitler or the devil, I do think life imprisonment is probably reasonable), I’m also less sympathetic to his victims than most.  Given, any time you’re robbed it’s bad.  And, it bothers me when people think it’s ok for bad things to happen to rich people because their rich.    A number of investors with Madoff lost EVERYTHING (they gave it all to him and were living off of the returns) and went from being rich to being poor.  Even if these are people who don’t have a lot of experience managing their money, it was pretty stupid of them to put 100% of their money into one investment (no matter how good they thought it was).  People did the same thing with Nortel and with income trusts.  They’re happy to cash the checks in the good times, but start howling when their luck turns.  Grow up!  If you’re retired and don’t have enough investments with ultra-safe, conservative investments (like fixed income) to get you by at a minimum standard of living, then you’re gambling with your future (and shouldn’t get much sympathy if your luck turns).  Madoff was giving consistent returns of 10-12%, which tells anyone with a brain that there’s significant risk there.

That being said, it’s remarkably easy (although crass) to tell people who have lost on investments that they were greedy.  However, Madoff investors who lost it all were being greedy (there, I said it).

What has been your feeling about the whole Madoff situation?  Do you think spending the rest of his life in prision is a reasonable punishment?  Do you believe that he was acting alone?  Should investors be required to return money they withdrew from Madoff before the news broke?