Few tears will be shed for Bernie Madoff, mastermind of undoubtedly the biggest ponzi scheme in human history. Mr. Madoff was excoriated by his victims as a “monster,” a “serial criminal,” a “murderer,” and "extraordinarily evil." Some even compared the resulting damage from Madoff's theft to Adolph Hilter and the Holocaust! But how do Mr. Madoff’s actions compare with the Wall Street financial barons whose reckless greed nearly destroyed the entire global financial system? Mr. Madoff got 150 years in Federal prison for his crimes. What has happened to the Wall Street guys? Dare we ask?
Irving H. Picard, the court appointed trustee representing Mr. Madoff’s victims, “estimated the total cash losses … at $20 billion,” in the classic "cash in, cash out" fraud. It is said that over $170 billion flowed through Madoff's principal account over decades and at the onset of the scandal his accounts held nearly $65 billion, although he never traded any securities. A total of 15,400 claims have been filed with the trustee.
Who were some of the victims of Mr. Madoff’s scheme? A partial list follows and a more complete list can be found here.
HSBC - $1billion
Access International. $1.4 billion
Fortis Bank. $1.4 billion
Man Group’s RMF division $350m
Tremont Capital. Fund of funds. $3.3 billion
Pioneer Investments, $835m
Union Bancaire Privet: $1.1 billion
Benbasset & Cie: $935 million
BBVA: $404 million
Maxam Capital Management LLC. Combined loss of $280 million.
Fairfield Greenwich Group. $7.3 billion
Fix Asset Management. $400 million
Kingate Management Ltd. $2.8 billion
Santander Bank. $3.1 billion)
While there might have been some little old ladies in tennis shoes affected by the Madoff fraud, and certainly some NGOs and charities got badly burned, one is struck by the number of banks and hedge fund managers and other wealthy individuals who put their faith in Bernie Madoff. From all accounts, many of Mr. Madoff’s “victims,” felt pretty good about themselves when they were members of the exclusive Bernie Madoff investment club. That was one of Bernie’s selling points; people were just dying to hand over their cash because he made it such a special privilege. Whatever happened to the old market adage: “Buyer Beware!”
We learned recently from the NY Times that the owners of the NY Mets were
“so enamored of the enormous profits they earned while investing over decades with Mr. Madoff that they ignored repeated and specific warnings that he might have been operating a fraud. The team’s owners, Fred Wilpon and Saul Katz, used the profits from their investments with Mr. Madoff to establish personal fortunes, create dozens of family trusts and financially fuel their array of businesses, from the Mets to real estate to the creation of a cable sports network.”
Chase Bank, despite having “suspicions” about Mr. Madoff, allowed him
“to move billions of dollars of investors’ cash in and out of his Chase bank accounts right until the day of his arrest in December 2008 — although by then, the bank had withdrawn all but $35 million of the $276 million it had invested in Madoff-linked hedge funds, according to the litigation.”
Is it that some of Mr. Madoff’s alleged “victims” were also his accomplices and enablers?
Despite the justifiable outrage against Bernie Madoff by members of the “investor class,” the broader crimes of Wall Street in the 2008 financial crisis have met with a much more muted response, even though the impact on most Americans has been far more devastating than the sins of Bernie Madoff.
“
Between June 2007 and November 2008, Americans lost more than a quarter of their net worth. By early November 2008, a broad U.S. stock index, the S&P 500, was down 45 percent from its 2007 high. Housing prices had dropped 20% from their 2006 peak, with futures markets signaling a 30-35% potential drop. Total home equity in the United States, which was valued at $13 trillion at its peak in 2006, had dropped to $8.8 trillion by mid-2008 and was still falling in late 2008. Total retirement assets, Americans' second-largest household asset, dropped by 22 percent, from $10.3 trillion in 2006 to $8 trillion in mid-2008. During the same period, savings and investment assets (apart from retirement savings) lost $1.2 trillion and pension assets lost $1.3 trillion. Taken together, these losses total a staggering $8.3 trillion. Members of USA minority groups received a disproportionate number of subprime mortgages, and so have experienced a disproportionate level of the resulting foreclosures.”
“Some four years after the economy descended into the most punishing financial crisis since the Great Depression, the public still waits for the Obama administration,” to deliver the kind of justice administered to Bernie Madoff.
The 2007-’09 financial crisis was “avoidable,” the Financial Crisis Inquiry Commissionwrote in its report on the causes of the collapse.
“Mortgage fraud‘flourished’ in the run up to the collapse. Securities fraud was apparently widespread. ‘Lenders made loans that they knew borrowers could not afford and that could cause massive losses to investors in mortgage securities.’ About $1 trillion worth of home loans made from 2005 to 2007 were ‘fraudulent,’ the commission said, citing testimony from experts.”
“The Illinois Attorney General, Lisa Madigan, told the commission that she defined fraud to include lenders’ ‘sale of unaffordable or structurally-unfair mortgage products to borrowers.’ And yet, the perp walk so many Americans crave hasn’t occurred. Wall Street figures have largely gone untouched. Bank directors kept their jobs. In a sign that perhaps the fallout from the crisis has passed, outsized compensation is back. ‘People need to go to jail,’ said Liz Ryan Murray, policy director of National People’s Action, an advocacy organization that helped launch the website CrimeShouldntPay.com. ‘If you steal something, you go to jail. If you falsify documents, you go to jail.”
Why doesn’t that apply to Wall Street executives?
Given the magnitude of the losses suffered by average Americans in the 2008 financial crisis, Madoff’s handiwork looks small by comparison, but he got an out-sized punishment. The Wall Street barons, on the other hand, not only walked away scot-free, but with fat bonuses as well. Since Bernie Madoff is a kind of avatar for the entire financial system and, considering whom he defrauded, he had to be treated harshly. He was the symbolic scapegoat; all of Wall Street’s sins rest on his shoulders. After all, you can’t bilk the bilkers and expect to get away with it.
Justice is not blind in America; its eyes are clearly focused on the size of your portfolio. Don’t have one? Too bad for you!