Madoff, Lehman, and suicidal stupidity
Any intelligent person recognizes that a Ponzi scheme is, essentially, suicidal. Even in a consistently strong market, there will come a day when people will withdraw from the fund, investigators will shut it down, or the financial house of cards will fall apart. The best that a Ponzi schemer can hope for is that he will die before he is caught or will somehow be able to pull out all funds and make a run for it. In the case of Bernard Madoff, it’s pretty clear that he was counting on the former. While this didn’t work out, one could make a strong argument that Madoff’s life currently isn’t worth a plugged nickel: even if he somehow survives the next few months without suffering a massive coronary, chances are that a former investor or fellow inmate (or both!) will soon introduce him to the business end of a shank.
Regardless of Bernie’s final disposition, the Madoff scandal has highlighted a pretty impressive trend in Wall Street: it’s becoming increasingly apparent that numerous financial players, from investors to managers to CEOs, have been playing the market like there’s no tomorrow. Who can forget, for example, Lehman CEO Richard Fuld’s whine that Lehman was seemingly singled out for failure, while so many others were bailed? Never mind that Lehman was leveraged 32 to 1 during Fuld’s tenure or that big Dick himself was the recipient of hundreds of millions in bonuses. Somehow his willingness to buy into the myth of eternal return transformed Fuld from villain into victim; after all, it’s hardly his fault that the Easter Bunny and Santa Claus don’t really exist.
For that matter, how about Mark Dreier? The Manhattan lawyer was recently caught selling fake promissory notes for numerous firms in a scheme that was so transparently bogus that it was ultimately unraveled by a single receptionist listening in on a single conversation. Somehow, however, for all its patent falsehood, Dreier’s game was able to sucker in colleagues and investors to the tune of $380 million. Granted, it’s not Madoff money, but it’s still a fortune to those of us who aren’t receiving bailout cash. How is it that these wheelers and dealers never bothered to check out the investments that they were purchasing?
From Merrill Lynch CEO John Thain’s (now renounced) claim that he deserves a $10 million bonus to the scalded cat-like cries of Madoff’s burned investors, Wall Street is ringing with the puling complaints of the formerly wealthy who seem to think that they were entitled to reap huge dividends, regardless of the state of the economy. Never mind that only an idiot would fail to question the disturbingly consistent 10% return that Madoff has posted, month after month, for years. Never mind that hundreds of thousands of formerly productive employees are now looking for jobs or that the ripples of this stupidity are only beginning to work their way across the economy. Somehow, America’s (formerly?) monied class seems to feel that the fact that they knew somebody, or that Madoff was their guy, should insulate them from the repercussions of their ignorance.
Of course, the victims of predatory lenders had no such protection. A few months ago, the walls resounded with the self-righteous platitude that ignorance of the economy should not be a protection against its effects; it will be very interesting to see how well that platitude fits when it is applied to the top 1% as opposed to the bottom 50%.
Even under the best of circumstances, schadenfreude is hardly a healthy emotion. In the current situation, however, there is a certain grim satisfaction in extending a hand to J. Ezra Merkin, Fred Wilpon, Norman Braman, Yeshiva University, and Madoff’s other burned investors as they enter the economic wasteland that they formerly disdained. Ladies and gentlemen, welcome to the jungle.