Waking Up In the Rubble

The following is an excellent excerpt from the book “THE WIZARD OF LIES: Bernie Madoff and the Death of Trust” by Diana Henriques from Chapter 11 titled “Waking Up In the Rubble” on page 210 and I quote: “The day after the music stopped for Bernie Madoff, the long march began for his victims. Like a major earthquake or a devastating cyclone, the collapse of the Ponzi scheme left his victims bereft, betrayed, and emotionally homeless. The world they knew had been destroyed; they could not stay in that world, and yet they could only guess at the path that would carry them into a less precarious future.
The humiliated regulators and the harried lawyers who had to sift through the debris faced journeys of their own—toward redemption, out of chaos.
Everyone in this ruined landscape had been forced to set out on an expedition of discovery, grueling and uncertain but just possibly heroic. The men and women of the SEC would seek to restore their honor. The lawyers hired to unravel Madoff’s fraud in bankruptcy court would try to find any hidden treasure and bring it back to those he ruined. But the individual fraud victims, who had believed for too long in this wizard of lies, were on a quest to find the most elusive prize of all: justice.
Most of them began their trek with only the vaguest idea of the terrain ahead. They did not know that some bridges had already been washed out. Most tragically, they could not see the crossroads around the bend where at least half of them would be detoured into a labyrinth of bitter fury and frustration.
At first, there was no way to know even how many victims there were, much less where they were going and what they would find when they got there. The only clue was that staggering number from Madoff himself: $50 billion.
Within hours of Madoff’s arrest, self-proclaimed financial experts on the Internet had dismissed the figure as grandiose and implausible. Others accepted it as possibly true but argued that it probably represented only paper profits, not cash losses—as if a paper loss that wiped out everything you owned was somehow less damaging than a cash loss. In fact, Madoff’s estimate was low. It would soon be established that $64.8 billion in paper wealth vanished when Madoff was arrested, including cash losses of about $20 billion.
A few institutional victims surfaced quickly. The Picower Foundation, the Chais family foundation, and Norman Levy’s family foundations closed their doors almost immediately, stunning their employees and grant beneficiaries.
By Friday, December 12, a few elite hedge funds had sheepishly disclosed to investors that, for all their preening claims about careful due diligence, they had been ripped off.
Those “Dear Investor” letters started to flutter out of fax machines and arrive as e-mail attachments and urgent FedEx deliveries around the world: “As we are sure you are aware, Bernard L. Madoff was arrested yesterday. . .” (But as you may not be aware, your fund invested substantially all of its assets in another fund that invested in three other funds, all of them entirely invested with Madoff.) “We’re shocked. . . are consulting counsel. . . are collecting all pertinent information. . . will keep you informed.” The recipients of these letters were calling lawyers of their own, and those lawyers were getting calls from the media.
The shock and horrified embarrassment was especially keen for the giant Madoff feeder funds whose managers had taken such pride in their due diligence and yet sustained such enormous losses: Fairfield Greenwich Group, Ezra Merkin, Bank Medici, the Tremont funds. Bloggers immediately branded them as likely accomplices, refusing to accept that such smart, sophisticated people could have been fooled for so long by a crime as elementary as a Ponzi scheme.
Major banks across Europe began issuing press releases: Banco Santander’s Optimal funds were invested with Bernard L. Madoff . . . Funds affiliated with UBS may have been invested . . . HSBC may be exposed through its hedge fund administration unit. . . BNP Paribas has about $500 million at risk through trades and loans to hedge funds.
Tipsters who had listened for years to their country club companions brag or whisper about their Madoff accounts sent anonymous notes or left voice-mail messages for reporters, naming names.
Lists were built, expanded, corrected. Naturally, the glittery names surfaced first: Fred Wilpon, an owner of the New York Mets; Norman Braman, the former owner of the Philadelphia Eagles; Baseball Hall-of-Famer Sandy Koufax; Mort Zuckerman, the real estate tycoon and owner of the New York Daily News; the actors Kyra Sedgwick, Kevin Bacon, and John Malkovich; the noted screenwriter Eric Roth; the ex-wife of the actor Michael Douglas; the heirs of the singer-songwriter John Denver; a foundation set up by Jeffrey Katzenberg, a cofounder of the DreamWorks studio in Hollywood, where his partners were the star record producer David Geffen and the Oscar-winning director Steven Spielberg, whose foundations were also affected.
What immediately became apparent was the astonishing geographical reach of Madoff’s crime, a perverse monument to two decades of financial globalization. The lists soon included Swiss private bankers, a Singapore insurance company, a Korean teachers pension fund, an Italian bank holding company, major Japanese banks and insurance companies, trust funds in Hong Kong, Dutch money managers, a sovereign wealth fund in Abu Dhabi, a French cosmetics heiress, minor royalty in England and Monaco, two Catholic schools on St. Croix, hedge funds in Luxembourg, and wealthy families in Mexico, Brazil, Argentina, and Dubai. One legal consortium in Europe would later estimate that as many as three million people were touched by the scandal.
In the United states, the visible victims included trustees of cultural institutions in New York, retied Wall Street executives, wealthy real estate developers in Chicago, respected academic figures in Boston, a foundation in Seattle, a state legislator in New Jersey, and cluster of retirees in Aspen, Colorado. Even the International Olympic Committee has a sliver of its assets invested with Madoff.
Against that cosmopolitan tapestry, a more primitive response began to surface. News sites on the internet had to regularly scrub away anti-Semitic slurs from the comments posted in response to stories about Madoff and his fraud. When the Nobel laureate and Holocaust memoirist Elie Wiesel, revered for his courage and humanity, confirmed that Madoff had stolen his small foundation’s entire endowment—for some, the ultimate betrayal—many in the Jewish community became alarmed about the backlash that Madoff might inspire in such ugly times.
At one breakfast panel, held at the “21” club in Manhattan, Wiesel offered his own explanation for how the scandal could have happened. “It’s almost simplistic,” he said. “The imagination of the criminal exceeds that of the innocent.” His meaning was clear: a criminal can imagine committing his own crimes, while his victims cannot imagine anyone committing such crimes.
When Wiesel was asked if he could ever forgive Bernie Madoff, there was a long, almost painful silence. Then this man who seemed to have forgiven so many for so much quietly answered, “No.”
The Institute for Jewish Research in Manhattan organized an evening panel discussion to contemplate “the Madoff enormity,” as the moderator, Martin Peretz, described it. The auditorium was packed to capacity; the panelists were distinguished, thoughtful, and worried. Some feared that Madoff’s betrayal struck at the cords of trust that had allowed the Jews of the Diaspora to survive and succeed in financial centers for centuries. But the historian Simon Schama reminded the audience that an increasingly tolerant American had just elected its first black president, Barack Obama; perhaps such ancient bigotry was no longer in fashion. Besides, he asserted, there was no evident surge in anti-Semitic vitriol in these post-Madoff days.
Journalists in the audience knew better; they had only to look in their e-mail in-boxes.
Within a week of Madoff’s arrest, the Anti-Defamation League reported a sharp increase in vicious slurs against Jews on the Internet, most related to Madoff. The fact that Madoff and many of his victims were Jewish created a “perfect storm for the anti-Semites,” warned Abraham Foxman, the longtime head of the organization. The list assembled by the ADL included comments such as these posted on mainstream magazine and newspaper Web sites: “One Jew thief robs another bunch of Jew thieves—I suppose that’s what you’d call a victimless crime”; “Ho hum, another Crooked Wall Street Jew. Find a Jew who isn’t Crooked. Now that would be a story”; and “Just another jew money changer thief. It’s been happening for 3,000 years.”
In reality, Madoff’s crime had far outstripped its original Jewish connections. Almost all of the hard cash wiped out by the fraud had poured in since Madoff’s cash crisis in late 2005, and it had come from hedge funds around the world, from aristocratic Europeans and shadowy Russians and sovereign wealth funds in the Persian Gulf. If those investors had heard of Bernie Madoff at all, they associated him with the rise of NASDAQ and the automation of Wall Street, not with the Jewish country clubs on Long Island and in Palm Beach or the board of trustees at Yeshiva University.
But he had been a member of those Jewish country clubs, and hundreds of their members had lost decades of accumulated paper profits. And he had served on Yeshiva’s board, and the university was scrambling to calculate the funds that had been so suddenly erased from its endowment. His earliest sales networks relied on word of mouth, and they had their roots where his Jewish friends and relatives had originally gathered: in the synagogues, at the Jewish clubs and resorts,on boards of Jewish charities, hospitals, and schools.
So his crime certainly began as an “affinity fraud,” the pleasant-sounding term criminologists use when one member of a close-knit, trusting community exploits that trust to steal from others in the group. It has happened everywhere, wherever members of a cohesive group have enough faith in one another to blind them to the lies piling up around them. A pastor steals from his devoted congregation. A retired military man exploits the troops. An immigrant from Haiti, or Russia, or China, or Cuba—anywhere, really—steals from countrymen who have settled into new homes in America.
At the beginning, Madoff exploited the trust and respect he had earned in a close-knit Jewish community. His reputation in those circles was his original passport to financial credibility in the wider world. He enhanced his reputation with ties to other trusted members of the group such as Ezra Merkin and Stanley Chais; his own nonprofit investors included giants such as the American Jewish Congress, the Jewish Community Foundation of Los Angeles, and Hadassah. By the end, he was pulling cash from every corner of the globe, but it was a harvest that had grown from his own Jewish roots.
So, inevitably, this became a Jewish scandal among Jews themselves. Rabbis reflected on its lessons; a Jewish country club invited speakers to talk about it; a professor at Yeshiva University added it to the syllabus of his religious ethics class. Jewish charities, foundations, and endowments vowed to be less trusting and more rigorous in their investment practices. Some investors wept or raged over what Madoff would mean for the Jews, but many others were sustained by courage and mordant humor. The Jewish Journal’s online news site featured a new blog about the unfolding Madoff case and called it “Swindler’s List.”
The crucial puzzle of those early days—the one that would shape public reaction for months—was this: Who were Madoff’s victims? Aside from some worthy charitable and cultural institutions, were they just a few movie stars, plutocrats, and hedge funds, each mourning a $100 million loss? Or had tens of thousands of ordinary middle-class families also lost hundreds of thousands of dollars in retirement savings?
Unfortunately, the second scenario was closer to the truth. For every boldface name like Steven Spielberg or Larry King, there were a host of dentists and small-time lawyers and retired teachers and plumbers and small business owners. Roughly a thousand Madoff accounts had fictional balances of less than $500,000. But there was simply no way to know this, not at first.
There were e-mails and calls to the media from ordinary people such as a housewife in Brooklyn; a zoning lawyer in Coral Gables, Florida; and a part-time museum curator in Connecticut—all explaining that they or their elderly relatives had been living off the modest nest eggs entrusted to Madoff generations before. Some had nothing left now but Social Security. Soon there were reports that the pension plans for some small medical practices and construction-trade union locals had been wiped out. Yet some of those victims were reluctant to be identified, or had been warned by their lawyers to remain silent. Unfortunately, their star power was feeble compared with that of the founders of DreamWorks and the owners of the New York Mets.
The public and the media were slow to understand that the key question to ask was not “How much did you lose?” but “How much do you have left?” Many, if not most, of the notable names had lost tens of millions but had plenty left, by any reasonable standard of human comfort. Some of the obscure victims had lost only thousands but had nothing left except their cars, their mortgaged houses, and the cash in their wallets.”

(THE RAGE IN THOSE DAYS AND STILL IS, HOW OUR BIGGER AND WISER INVESTMENT BANKERS ARE STILL PROMOTING HEDGE FUNDS AND PRIVATE EQUITY AS INVESTMENTS. OUR GOVERNMENT WAS FINALLY FORCED INTO INVESTIGATING BERNIE MADOFF, WHO HIS SONS TURNED IN, BECAUSE THEY REALIZED, THEMSELVES, THAT HE HAD LOST IT BUT WE, AS A NATION, HAVEN’T REALIZED THAT ON A BIGGER SCALE, SUCH AS JPMORGAN. IF WE EVER REALLY DO START INVESTIGATING WHAT HAPPENED TO THE MISPLACED $6 BILLION BY JAMIE DIMON THEN MAYBE WE, TOO, SHOULD REALIZE WE SHOULD HAVE KEPT AN HONEST, REGULATED BANKING SYSTEM AND NOT HEDGE FUNDS AND THOSE UNREGULATED, TOXIC DERIVATIVES, THAT ARE TALKED ABOUT IN THIS BOOK AND IN WHICH JPMORGAN CHASE ARE STILL VIGOROUSLY PROMOTING. AND THE POOR EXCUSE I HEAR NOWADAYS, SINCE I’VE BEEN LOBBYING AGAINST TOXIC DERIVATIVES FOR OVER 20 YEARS NOW IS, “AFTER BERNIE MADOFF, WE REALIZE THERE ARE SOME BAD DERIVATIVES BUT WE PROMOTE ONLY THE GOOD DERIVATIVES.” I TELL THEM I NEVER HEARD OF ANY GOOD DERIVATIVES. YOU SHOULD QUIT MAKING EXCUSES. THERE IS A 100 PERCENT DIFFERENCE BETWEEN COUNTERFEIT MONEY AND THE BASIC COMMODITIES, SUCH AS GOLD, SILVER, FOOD COMMODITIES, LAND, ETC. AND THE WORLD IS GOING TO HAVE TO ACCEPT IT AND LEARN TO LIVE WITH IT OR DIE.

LaVern Isely, Overtaxed Independent Middle Class Taxpayer and Public Citizen and AARP Members

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About tim074

I'm a retired dairy farmer that was a member of the National Farmer's Organization (NFO). Before going farming, I spent 4 years in the United States Air Force where I saved up enough money to get my down payment to go farming. I also enjoy writing and reading biographies and I write about myself as well as articles and excerpts I find interesting. I'm specifically interested in finances, particularly in the banking industry because if it wasn't for help from my local Community Bank, I never could have started farming which I was successful at. So, I'm real interested in the Small Business Administration and I know they are the ones creating jobs. I have been a member of Common Cause and am now a member of Public Citizen as well as AARP. I have, in the past, written over 150 articles on the Obama Blog (my.barackobama.com) and I'd like to tie these two sites together. I'm also on Twitter, MySpace and Facebook and find these outlets terrifically interesting particularly what many of these people did concerning the uprising in the Arab world. I believe this is a smaller world than we think it is and my goal is to try to bring people together to live in peace because management needs labor like labor needs management. Up to now, that hasn't been so easy to find.
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