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The Nation.
January 5, 2009
Alexander Cockburn
A Giant Ponzi Scheme
We need the brush of Caravaggio to depict
the awful scene whereat least on their
lawyers accountthe sons of Bernard
Madoff confronted the errant paterfamilias, who informed his
offspring that the cupboard was bare, the investors had been
duped and all these years hed been running a giant Ponzi
scheme. But this time, reversing Caravaggios terrifying image,
it was the old man who was bowed over the sacrificial rock and
the sons with knives raised to dispatch their white-haired progenitor, turning him in to the FBI. Of course, there have been
unkind souls eager to suggest that the three men had been working cheek by jowl for twenty years and that Bernie and his boys
were in cahoots on the triage as an exercise in damage limitation.
To such cynics I say, Pshaw!
On the other hand, I lend a more receptive ear to those who
say that at least some of Madoff Sr.s clients were not
so nave as to believe he had a virtuous investment
model that permitted him to report 1012 percent
annual returns on capital invested, through boom
and bust. They thought Madoff indeed had a secret
model, but one coming in the distinctly unvirtuous
form of insider information.
The most gullible marks are those who preen
themselves as being privileged accomplices in a profitable conspiracy where they have no personal exposure
to legal sanctions. Madoffs prosperous victims fatally miscalculated the dimension of the swindle. As instruction on how to get
through life in one piece, Madoffgate is proof of the old rule: the
more elegant the tailoring, the more handsomely silvered the
distinguished locks, the more innocently rubicund the visage,
the more likely the hand covertly fishing for ones wallet.
On the larger canvas, what exactly separates Madoffs operation from those of the banks rewarded for their shady follies by
a $700 billion bailout? Just like Madoff, the banks finally had to
admit that all their public financial statements were false, that
the supposed assets were worthless. Unlike Madoff, who looted
his clients of a mere $50 billion, they were too big to fail.
The operating assumption of the Ponzi scheme is that the
tide will always rise, that old investors can be repaid by the
infusions ponied up by the fresh recruits. For the past twenty
years the entire American economy has becometo quote again
Bernies succinct rsum of his businessa giant Ponzi scheme,
bloating out like the metastasizing planet described by Stanislaw
Lem in his strange science fiction novel Solaris.
Uncle Sam is the biggest Ponzi operator of all. Bernie had
to constantly replenish his fund with new deposits. So does
Uncle Sam, wheedling more money out of the Chinese, the
Indians, the Japanese and poor Third World nations forced to
pony up at the point of a gun. But in the end Uncle Sam has
one huge asset denied Madoff, who seems to have stopped
short of the straightforward forgery allegedly practiced by
Marc Dreier, the Manhattan lawyer arrested in Canada for