Prophet without honor

28 February 2011

Monday


Disgraced former financier Bernard Madoff has granted a series of telephone interviews from behind bars, recently published in New York magazine. The 72 year old prisoner has been incarcerated since fall of 2008 as the result of the exposure of his investment firm as one of the largest Ponzi schemes in history. It has been said that, in dollar terms, Madoff is the biggest criminal in history, showing paper losses of 65 billion dollars.

I first found out about the interviews on the BBC website. The story disappeared from the BBC, but I found it again at something called the BBC News Blog Headlines, Madoff to N.Y. Magazine: Govt a Ponzi Scheme. It is impossible not to notice that the story is not getting much coverage at the Financial Times or the Wall Street Journal. It could be argued that these venues have already played out the Madoff story, but I think it’s more likely that they simply would prefer that the story would go away, as Madoff is an embarrassment to the finance community. (It would honestly be difficult to say whether Nixon or Madoff was the more politically radioactive.)

Because of the magnitude of his crime, and perhaps also because of the fallout in the community of which he was once a part — fallout that touched his family personally when one of his sons committed suicide in the wake of the scandal — Madoff is about as compromised a figure as one can find in the contemporary world. It is predictable that his statements from the interviews would be greeted with moans and groans of disbelief that the man would have the temerity to speak out publicly after the damage he has caused. But he has spoken out, and at some length. The length of his statements in turn has generated further moans and groans, with the innuendo being that one of the drivers of his fall was his own self-serving egomania, which has not abated since his imprisonment.

While I recognize Madoff’s disgraced and compromised condition, I have never been one to simply dismiss, tout court, everything that a person has to say because because some (or even most) of their words or actions are compromised. I understand this reaction. I have encountered it many times in life, but it is not one that I share. I am willing to learn from anyone who has something to teach, notoriety aside.

Here’s a paragraph from the New York magazine story, The Madoff Tapes:

He sees himself at this stage as a kind of truth-teller. He has disdain not only for the industry but for the regulators. “The SEC,” he says, “looks terrible in this thing.” And he doesn’t see himself as the only guilty party on Wall Street. “It’s unbelievable, Goldman … no one has any criminal convictions. The whole new regulatory reform is a joke. The whole government is a Ponzi scheme.”

Like much of the rest of this story, the statement seems self-serving. One of the most reported aspects of these interviews has been Madoff’s claims that his large investors, including institutional investors, had to have known that something was fishy with his consistently high profits year in and year out. This is widely interpreted as Madoff spreading the blame around, and claims of the SEC’s failures will be seen in the same light.

But we should take Madoff’s ridicule of the SEC and his former investment colleagues seriously. Indeed, we should be picking his brain about the industry, for who knows better how to defraud investors and institutions for years than Madoff himself?

If regulatory reform is a joke, Madoff probably isn’t the only one to have recognized this. Industry insiders who work with this specialized sector of the finance industry probably howl with laughter in private over matters that the news skims over without understanding and the public avoids because eyes would begin to glaze over if a real effort were made to follow in detail the minute complexity of moving vast amounts of money to the best advantage of those few who have access to money management at this level.

I, for one, would like to hear more from Madoff, not less. I would like to hear a line-by-line analysis of financial regulation by Madoff, who could probably come up with a dozen dodges and circumventions to each rule off the top of his head. This would be a valuable service, and could constitute the beginning of atonement after the fact of a stunning fall.

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