For Madoff, Reputation Is Apparently a One-Way Street

Our friend James Altucher, in an interview at Yahoo!’s Tech Ticker, talks about visiting Bernie Madoff and his son Mark back in early 2005 to pitch them his fund of funds:

I had a fund of what’s called PIPE [private investment in public equity] hedge funds. And I went through the whole pitch. My returns were great, they were very excited, but they said, “James, we love you but we cannot invest in your fund of hedge funds.”

And I said, “Why not?” And they said, “Here at Madoff Securities, reputation is the most important thing, and to have that money go out there, you’re sending that money out there, we have no idea about the hedge funds you’re in. We cannot take any reputation risk. … I’m sorry, it’s just our policy. No reputation risk at all.'”

Just a tad ironic, no? The rest of the interview, by Aaron Task, is also interesting.

Among the highlights:

Task:

What is your sense about whether Madoff was really working alone as he has claimed?

Altucher:

No, clearly he wasn’t, because you know there were printed statements being sent out to people. You know, even Mark Cuban wrote on his blog: Who wrote the software to process all these statements? There’s some weird thing that’s going on that we don’t know about.

You know that saying, like if you owe $10,000 to the bank, they own you, but if you owe $50 billion to the bank, you own them? Bernie Madoff owns the country basically, because where is the $50 billion? And there’s a lot of unanswered questions here while he’s just running around.

I mean, I got a call the other day from somebody I knew, she had a million and a half invested with him and now she has $100,000 left to her name. She’s about 60 years old and her question was: what do I do?

There’s no more pep talks, there’s no more optimism for her. My answer was basically this: You’ve got to sell your house, you have to figure out what skills you have, and get a job. You’re going to have to do it. And then the optimism is, it’s not so bad to work. It’s not a bad thing. Like, trust whatever higher power you believe in and try to do good in the world.


jeff b.

It's not really ironic since it sounds like madoff didn't invest in anyone. It was a ponzi scheme, not an investment house. I'm sure he had a bunch of different excuses ready for anyone that pitched to him.

anonymous

"Not FDIC Insured - No Bank Guarantee - May Lose Value"

Need we say more?

"Invest" at your own risk.

JoseAngelCMS

It is totally immoral to do what Madoff is doing. Even though the economic times are hard for everyone in the moment, he is just making it even harder for some people. He is going over others to get what he wants. He is making people hopeless by disappearing with all their money; he owes people an incredible sum of money, but it seems that he doesn't plan on giving it back. The post goes on saying that he even owns the country for not giving people the 50 billion dollars he owes.

SkepMod

I have no sympathy for the sixty-year-old who had 80-100% of her money tied up with one single manager. She is either lying about how poor she is now, or she was greedy - like REALLY GREEDY.

The Madoff's of the world are evil, but they do good by reallocating capital away from people like her.

P

Madoff's real crime was not being the government. They're allowed to do exactly what he did, and the only difference is that when their scheme falls apart, they can use either their army of thugs to expropriate the funds necessary or fire up the printing press.

Can anyone explain how Madoff's scheme is morally any different than social security?

Tim

I now truly understand- for the first time in my life- why old timers around here buried their cash in Ball jars and hid it in mattresses for years and years.

Donnie

@SkepMod #4

Maybe she was just had no clue what she was doing. You can't exactly say that it is her fault for trusting someone with her money.

pelayo@cms

It has not only been the 60 year-old woman who has faced, loosing huge amounts of money to thin air. James Altucher said the best thing to do is get a job; thousands out there are trying to do the same thing. However it is easier said than done

Nile

"...where is the $50 billion?"

The money isn't stashed somewhere, it's been scattered among the 'investors'. That's the nature of a Ponzi scheme: new money coming in is distributed among existing members to simulate investment returns.

That is to say: there is no net loss, as the scheme is a mere redistribution of the money among the investors. Barring costs, and Madoff's personal income; but that's tiny in relation to $50 Billion.

In theory, the whole thing could be unravelled and restituted by going back to each and every victim and reclaiming the 'dividends' to rebuild the capital base, starting with the very first investors, who will have received the most money in relation to their deposit. In practice, they've all spent the money, or died, or are otherwise beyond reach, and the whole thing would be an administrative nightmare.

Also, I would reiterate the point made in a previous comment, about the sixty-year-old lady (albeit without the moral judgements) in that she was very badly-advised in placing her life's funds with a single manager.

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ktb

I tend to agree with 7. Lack of wisdom is not the same as greed. She did what she was told to do for an entire generation- invest so you have enough money to retire on. I'm sure she figured the "diversify" part was being managed by the person she paid to handle her investments.

Frank

Come on, #7 and #10.

Ignorant poor people miss capital gains because they've never been shown know how to invest.

Only ignorant rich people "trust people with their money"

Again, let's not forget that it was an "honor" to be able to invest with Madoff, not just anyone could. This lady is not going to be put into the street or anything.

Basically this "poor" 60 year old will have to take out a reverse mortgage on her home, forgo an inheritance to her kids, and take maybe 1 less vacation a year.

Boo hoo.

Hilda CMS

In business and economic theory the whole point practically is to maximize profit, in other words to have the most money. But this normally applies to firms and there is a thin line between just maximizing your earnings and immorality. What Madoff is doing is definitely immoral. He is screwing people over and ruining their life plans. The 60 year old woman for example, might of been retired and now she has to not only sell her house but also get a job? I mean, how many thousands of people have been fired in the last few months? Getting a job at this point and time is definitely not as easy as it sounds.

Kevin H

@5 The moral difference is deceit. If he had told people, "I'm going to take your money and not invest it, but give it to other people" Then no-one could be very mad at him for doing exactly that.

I believe what you are getting at is that both Ponzi schemes and Social Security have similar economic models, and both are prone to the same types of failures. Which I can't disagree with. The question then is who do we screw to replace it with a better model. the original people who got benefits without paying for them are dead and gone, so we either screw the people who already paid into those benefits by dissolving the system and the benefits, or do we screw yet new people by taxing them for benefits they will never see?

ceolaf

What I want to know is NOT how much people thought that had with Madoff. Rather, I want to know how much they gave him.

The difference?

If I give you $20, and you say that you'll add $5 each year until I want it back, and then in ten years you tell me I'm never getting anything, what I have lost? What have you stolen (or redistributed)?

I think that the big number people are talking about is that $70 I thought you owed, not the $20 you stole all that time ago. Sure, I've lost out on some money making-opportunities there, but that doesn't mean that that is what you stole/distributed. Rather, you stole $20 ten year ago, and I didn't realize it.

So, how much did Madoff actually take in?

sarahCMS

Being evil never pays off, meaning Madoff should go to church or something similar in order to learn about morality. He should know better, especially when it involves the life of such an old women. Due to the fact that the economy is not at its best time, getting a job is very hard. In response to SkepMod, please do not judge people if you do not know them. At least Madoff's bad behavior can be proved, but not the lady's. But sadly SkepMod proves us that in a world were money means power, in economics there is no sympathy, unfourtanetly.

sobe

I think he should commit suicide, like Ken Lay did.

SHUN-CMS

I agree with Sarah, "Madoff should go to church" haha - her point about how immoral Madoff is - as many commented. This is ridiculous. His actions should be punished. However, again as Sarah pointed out "in economics there is no sympathy". With today's economic situation, rational behaviour is to save oneself and people do no have a extra space / caring for others. The project (site) initiated (or planned) by Mr. Todd Palmer, for instance, could be a solution perhaps?

Ana Moure

Don't want to overcrowd the space with my sweet memories of working in financial advisory company. But my answer to SkepMod is here:

http://anamoure.blogspot.com/2009/02/more-on-madoff-debate.html

Naomi

So is it bad to have all of one's life savings at a company such as Vanguard? Perhaps there was no difference to the 60-year-old: she thought she was investing in a regulated and audited investment firm.

Michael

What are you people talking about?!? Anyone who compares Social Security to a Ponzi scheme is a flat out idiot. An when I say idiot, I mean an ignoramous of such proportion that steam might actually be coming out of my ears...

Social Security is an attempt at preventing old people from the horrible poverty that was rampant in this age group prior to the New Deal.

Anyone who rejects Social Security should think long and hard about providing food and shelter for their own parents.