“Bernie The Wizard” is not my attempt at a children’s story.
“MADOFF: The Monster of Wall Street” is now on Netflix and well worth watching. I enjoyed it so much I bought the book “Bernie Madoff: The Wizard Of Lies” by Diana Henriques who features in mini-series. The book is great if you want to go deeper into what happened.
In essence Madoff’s scam was simple, fewer than ten people were involved plus regulators ignoring clear warnings and financial institutions not doing due diligence – simple human failings all round.
Madoff offered no investment literature, he refused to discuss his investment strategies in any detail, there was no online access, no third-party verifications, and he provided only paper statements which he had fabricated from scratch. If you demanded any of the above he threatened to return your money and never allow you to be a client again.
He then made no investments, he simply took cash from Peter and gave it to Paul, it was a classic Ponzi scheme. He then relied on his made-up statements to show returns that never existed. Those returns were never outlandish, they just appeared to be immune to market ups and downs and very consistent. His stated returns never quite made sense but they were too attractive to ignore – they dazzled many.
Madoff was often caught lying – to regulators, clients and institutions. Somehow he was always given the benefit of the doubt. His fraud relied on the trust and belief people had in him, the truth was always hiding in plain sight and he could and should have been discovered years earlier.
The US authorities ignored numerous warnings, they did not even check the information Madoff gave them about his activities, their negligence was a wonder to behold.
Even the most sophisticated investors and institutions. Or were they? The bank he used for all the cash transactions did not heed their own internal warnings, the trades he claimed to be making were not showing up in the investment markets, his auditor was a one-man band in rural New York state.
One or two elementary checks at any time in the 15 year+ fraud would have revealed the truth, but they never happened. Money continued to pour in until 2008 when the financial crisis unfolded and he was overwhelmed with withdrawal requests.
Had 2008 not happened who knows how much longer his fraud would have survived. At the point it was revealed he had accepted about $20bn in cash and the value of all the false statements combined amounted to about $65bn.
“Bernie The Wizard” is not a tale about wizardry – there was no magic – it is simply a sorry tale of lying, incompetence and greed.
And, given that base human instincts are the foundation of this tale, it is doubtful many lessons have been learned.