Bernie Madoff, The Wizard of Lies by Henriques Diana B

Author:Henriques, Diana B. [Henriques, Diana B.]
Language: eng
Format: mobi
Publisher: Oneworld Publications (trade)
Published: 2011-08-18T04:00:00+00:00

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-income families also lost hundreds of thousands of dollars in retirement savings?

Unfortunately, the second scenario was closer to the truth. For every household name like Steven Spielberg, 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, New York; a property 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.

It was perhaps understandable that it took so long for that fundamental question to surface. The first commandment of investing is “Don’t put all your eggs in one basket.” It didn’t seem possible for this rule to have been so widely and so catastrophically ignored, even by nonprofit trustees and pension plans with fiduciary obligations. Typically, the failure of a legitimate midsize brokerage firm like Madoff’s would not wipe out every single penny its customers had. Plenty—or, at least, something—would be left in a company pension plan or a bank account or a money market fund. As for the hedge funds, they supposedly catered only to wealthy, sophisticated people who were, by definition, too smart to hazard their entire fortune on one investment. Indeed, this had been one of the reasons for not regulating hedge funds more tightly over the years.

Fires, earthquakes, and hurricanes were readily recognized as events that required an emergency response to alleviate human suffering; the Madoff fraud was not. Few people even wondered at first if there were victims who had been totally wiped out

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