By ALEXANDER COCKBURN
Call any Jewish friend across the few days and the degrees of separation from someone financially devastated by Bernie Madoff are often only one or two. One rich Jewish friend in New York volunteers that because of some intricate family dispute his own money hadn’t been parked at Bernard L. Madoff Investment Securities LLC. On the other hand his uncle had woken up the morning after Madoff’s arrest to discover that the $40 million he’d entrusted to Bernie was gone forever, along with the multi-million pension fund of his workforce, which he’d also entrusted to Madoff.
It’s not just ruined heiresses in the Palm Beach Country Club now faced with the prospect of dividing the contents of the Whiskas can into two equal portions for mistress and cat, it’s academics on Ivy League campuses, doctors in Santa Monica, rich people from Boston to San Francisco to the West Side of Los Angeles finding their retirement nest eggs or charitable trusts wiped out overnight.
In terms of financial and psychological impact, Bernard Madoff's $50 billion heist certainly ranks as a major ethnic cleansing here in America, a hugely traumatic event for American Jewry. Of course Madoff had clients of every creed and nation, but he made a specialty of trolling for Jewish money. I asked a Jewish woman I know here in California if any in her circle had taken a hit. She looked at me tremulously, shaking her head, on the edge of tears. Though no one was in immediate earshot, she whispered, “They kept telling me to put my money with Madoff. At that time the entry level was $250,000. I dodged the bullet. Some of my friends didn’t. They’ve lost everything. This is Kristallnacht Two.” Her fear and horror would scarcely have been diminished if she’d heard what a perfectly nice young person had remarked to me earlier, apropos the Madoff affair: “Now the rich people will know what it’s like.”
"‘It’s an atomic bomb in the world of Jewish philanthropy,’ Mark Charendoff, president of the Jewish Funders Network, told Anthony Weiss and Gabrielle Birkner of The Forward newspaper. ‘There’s going to be fallout from this for years to come.’ The collapse of the investment firm of Bernard Madoff has opened a black hole at the center of the tight knit circles of wealthy Jews who socialize and do business together, and who, year after year, support Jewish causes… ”
Among those apparently taking serious and even financially fatal hits: Yeshiva University in New York; Senator Frank Lautenberg, New York Mets owner Fred Wilpon, real estate and media mogul Mortimer Zuckerman (“significantly hurt”), GMAC Financial Services chairman J. Ezra Merkin (who ran a hedge fund, Ascot Partners, which reinvested many charities’ funds with Madoff), the Elie Wiesel Foundation for Humanity, Steven Spielberg’s Wunderkinder Foundation, Jeff Katzenberg, the Boston-based Robert I. Lappin Charitable Foundation (which has closed its doors), Eliot Spitzer’s family, the Chais Family Foundation, the Carl and Ruth Shapiro Foundation, Hadassah (the Women’s Zionist Organization of America), the United Jewish Endowment Fund of the Jewish Federation of Greater Washington , the Los Angeles’ Jewish Community Foundation’s $238 million Common Investment Pool, the American Jewish Congress, the Technion-Israel Institute of Technology.
It’s a savage body blow to the commercial real estate market in New York. Christine Haughney in Friday’s New York Times quotes Robert J. Ivanhoe, a lawyer who is representing 10 developers and investors who lost $5 million to $50 million each, as saying “The level of devastation, both financial and on a human level, is astounding,” Haughney cites a Manhattan psychotherapist who counsels real estate leaders and bankers as saying “most of the patients he has seen this week have close friends and relatives who lost money with Mr. Madoff. The victims include executives at the global commercial brokerage CB Richard Ellis, most prominently Stephen Siegel, a major Bronx landlord who is chairman of worldwide operations at the brokerage.”
A huge problem is that many developers were using their investments with Madoff as collateral on projects and now banks are saying, “Show us the money.” Residential real estate will take a hit too as people back out of purchases because they’ve lost their money , or abandon coops because they can longer afford the annual fees and mortgage payments.
Pam Martens, CounterPuncher and former Wall St stockbroker, points out to me that “Yes, in the early years Madoff and his brother, Peter, worked the Jewish country clubs and got referrals from referrals. But as he ran into trouble with redemptions and needed ever larger pools of new money, he turned to funds of funds (hedge funds that raise money and then dole it out to various hedge fund money managers). That meant that Madoff really didn't know who the ultimate individual investors were. That also means that a lot of these people don't yet know they're victims because they were never told by their fund of funds that their money went to Madoff. (He would not let his name be given out by the fund of funds; obviously so the SEC couldn't figure out how much money he was really taking in.) So expect to hear a lot more big names being announced as victims over the next few weeks.”
"People are horrified. They are frightened of being exposed. They don't know how to go on," said a Boston-area psychologist, cited in an interesting story by Svea Herbst of Reuters: “Many duped investors have been left with a sense of betrayal so strong that it will cause severe psychological scars, said Dr. James Grubman, a psychologist who counsels wealthy families in the Boston area struggling with the emotional issues of having money. "He gave his investors a lot of intangibles. He allowed people to feel they were part of an exclusive club, part of the 'in crowd' and ultimately deemed worthy of investing with him."
How did Madoff, despite widespread suspicions across many years, continue to allure so many investors, smart fellows like Steven Spielberg well equipped with expert number crunchers? The most gullible dupes of all are those who preen themselves as being privileged accomplices in a profitable conspiracy, at scant risk to themselves. Part of Madoff’s genius as a swindler was that he turned many away. As my father, Claud, used to joke to me, “Alexander, people talk about ‘falling into the clutches of money lenders. I had to force my way in.” Madoff would turn down applicants unless they could put up millions, and that of course vastly increased the zeal of the suckers to be on a good thing, to join the exclusive club.
Of course many of them thought Madoff’s famous model was dubious. After all, how could the laws of financial gravity be defied, year after year, producing an unending yield (for the fortunate) of 10 to 12 per cent annual returns on capital invested. But the thought came with a knowing wink, that Bernie was scoring these huge returns, by being in the know, running on the inside track, using insider knowledge. As my father pointed out to me many times, many people have a bit of larceny in their bloodstream, and it’s what con men trade on, as Gogol imperishably described in Dead Souls.
CounterPuncher Pam Martens, who will be writing about the affair here in a few days, was on to Madoff back in 1991, as Susan Antilla described in a column on Bloomberg. Martens was “taking over management of a customer’s municipal-bond portfolio, but was alarmed when she heard how the man had invested the rest of his nest egg.
"He told me that the bulk of his money was with Bernie Madoff, and that Madoff guarantees a 13 percent a year return. I said, “First of all, that’s impossible, and second of all, that’s illegal.’” Martens got copies of the man’s brokerage statements and phoned Madoff. “I said, ‘I’m looking at Mr. X’s statements, and it’s clear you’re not doing anything here that generated 13 percent a year,’ He said, ‘No one has ever dared question what I’m doing.’”
In the years that followed, there were those who did question. Some of them pressed their suspicions upon bodies like the SEC, stating emphatically their view that Madoff was running a Ponzi game. Madoff sailed through the charges for a variety of reasons. First, he posed as a regulator and due diligence watchdog himself. The SEC thought he was one of their own. Then again, he had heavy duty social and financial connections and heavy duty political protection. Here’s where there should be a lot more investigation. Madoff poured money into the Democratic Senatorial Campaign war chest ($100,000 between 2005 and 2008)and made large contributions to important Democrats on the Finance Committees, like Rep Henry Waxman and Senator Charles Schumer. Waxman and Schumer have hastily announced they’re donating this money to charity. (Who knows? Maybe the donations have gone to the next Ponzi racket down the food chain so it’ll come back to them again as protection money.)
The carnage will go on for years. As Dean Rotbart points out in The Jewish Journal:
“A phalanx of plaintiffs attorneys are trolling this very moment for clients who are certain to mount a legal assault on charities, universities and other non-profits in a bid to force them to disgorge past donations whose origins can be linked back to the Madoff scheme.
“At the very least, large numbers of individuals and institutions who today consider themselves to be victims of the Madoff scandal should brace for forthcoming legal actions that will allege their remaining wealth is not theirs at all – rather, it is the recoverable property of other claimants who were bilked by Madoff.
To keep their libraries, laboratories, scholarship programs, hospital services, meal programs and the like, universities and other non-profits who continue to operate in the wake of the Madoff scandal will also almost certainly have to retain law firms to combat efforts to strip those non-profits of past Madoff-related donations – whether directly from Madoff or indirectly from Madoff investors.”
Maybe not. Since a ot of Madoff-derived money went to Israel, I think perhaps we will soon see Congress rush through legislation to limit the liability of Madoff recipient non-profits, with President Obama , whose campagn contributions surely included Madoff money too, only to happy to sign on the dotted line.
On the larger canvas, what exactly separates Madoff’s 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.
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 become—to quote Bernie’s succinct résumé of his business to his sons —“a giant Ponzi scheme,”.
Uncle Sam is the biggest Ponzi operator of all, with the added magical power denied Madoff (unless forgery was among his talents) of being able to print money at will. CounterPunch tip of the week. Wheelbarrow stocks. Buy ‘em while the price is right. Soon Americans will be needing wheelbarrows to put the money in to go shopping. A vast new wheelbarrow industry could be part of Obama’s recovery plan. Collapsible wheelbarrows for the soccer moms to get in the back of the Volvo. Electric-powered wheelbarrows. Hybrid wheelbarrows from GM. Gold-plated wheelbarrows from the Defense sector.
This was no one-man operation, run after hours by Madoff with a secret ledger. No one person can single-handedly run a $50 billion business, even one with cooked books. This was a family business. Every decade has its signature swindles capturing the zeitgeist, and we remember them fondly – from Clifford Irving’s homage to Howard Hughes, the Hitler Diaries, Keating. Madoff is in the pantheon now. Though the legal obstacles will be formidable, I hope Spielberg, one of those stung by Madoff, gets around to making a movie about him. The Jewish Journal has even comes up with a title for him, Swindler’s List.
It’s Not Over till it’s Over
As snow here in a good deal of America falls on the just and unjust alike, and here at CounterPunch we use blowtorches to open the ice-frozen post box, let me rally CounterPunchers to one last thought for our future. We’ve had a strong year. Month after month our site has attracted millions of unique visitors. Our newsletters have been well received and have won new subscribers. CounterPunch Books enjoy a steady sale. It’s an encouraging picture and all of us here at CounterPunch thank you for your donations and subscriptions, but the edgy fact remains that in financial terms we’re never more than an inch or two from the edge of the cliff. We need every penny we can get, and so as we head to year’s end, and if you haven’t been wiped out by Bernie Madoff and feel that you have something to send our way, remember that all donations are tax deductible.
Our latest newsletter has three very strong pieces – starting with Bill and Kathy Christison’s powerful description of the fearful sufferings inflicted on Gaza by Israel and the United States. Barbara Rose Johnston takes us to the Guatemalan gravesites of one more human catastrophe instigated by the terror network known as the World Bank. I review the grim Bush record on freedom and constitutional protections
Alexander Cockburn can be reached at alexandercockburn@asis.com
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