The mass media were all over the Madoff fraud story recently, broadcasting how well-heeled Bernie Madoff ran a Ponzi scheme the size of Fort Knox and bilked so many people, including old and dear friends, out of billions of dollars.
The story has its own hero, Harry Markopolos, the whistleblower whom no one heard, and its own red herring distraction, Bernie’s wife, who gets to keep two and a half million, which is what people get to key on. Let’s hear it now, all together: why should she get to keep all that money when all his investors got screwed?
The truth is, there are hundreds if not thousands of Madoffs now. When you look at how it went down with our national real estate market and then our banks, it’s not so very different. A Ponzi scheme simply has the game more rigidly fixed–those last in are guaranteed to lose, once the spigot of money stops flowing.
But thousands are complicit in the greed that fueled our mortgage and banking melt-down, and that game also sang the siren song promising bigger pay-offs in the future than could be legitimately sustained. People who had no realistic means of paying their mortgages were suckered into home ownership, wiping out their life savings.
In retrospect, those adjustable rates are laughable, in a gallow’s humor way, and they allowed the mini-Madoffs to obtain then bundle their mortgages together into what were essentially fraudulent financial instruments, fueling the speculative bubble. Elderly people, no longer as sharp-witted as they’d been in their youth (and some day it’ll happen to us, too, should we live long enough) were suckered into taking out mortgages on their homes—in the process, many ultimately losing the only home they’d had for decades.
When newly impoverished senior citizens get evicted (some of whom commited suicide), are these real estate and banking villains really so very different fromn Madoff, except in scale?
I’ve never met the guy. I can’t prove it either way. But I’ll bet Madoff’s descent was a slippery slope, that he started out playing by the rules then liked playing the big shot and liked showing a profit for all his investors, for friends, acquaintances and everyone else, and it was a series of misjudgments and ethical stretches that would still be going had the game of musical moneyed chairs not stopped.
We’ve been down this path before. Earlier this decade we had insider trading and accounting scandals involving Enron, Worldcom and others, where the powerful committed massive fraud, and the media spotlight shone on some of the perps — including the made-for-primetime culprit Martha Stewart.
Martha Stewart garnered headlines for months – but she was comparatively small potatoes. The fraud committed by Enron alone dwarfed Stewart’s insider trading, yet she made such a juicy story. It was easy for the media to key on her. She was already a public figure, already on display. She was (and is) the doyen of the domestic; her cooking so good, her home so perfect, and she’s so much better at everything than you. So easy to want to see her taken down a notch or ninety, and thus she made a great scapegoat.
If you can’t take the heat, stay out of the kitchen — and Martha took the heat off any systemic failures the stories exposed.
If you’ve ever seen Robert Redford’s wonderful movie Quiz Show, you know the story of the rigged TV game shows of the 1950s, and how the scandal erupted and the fix was exposed. Yet the scandal was adeptly changed from that of a corporate fix to the dishonor of a well-known, aristocratic figure, Charles Van Doren.
In that way, we don’t focus on the systemic problem, our scapegoat is ready-made for us, and we don’t see any other ongoing shenanigans. In fact, they may never come to light at all.
I sketched this out in late June, before Madoff’s sentencing (along with a few other pieces) but didn’t finish this first section until today; I’ll tie it back in to the media next.