Bernard Lawrence “Bernie” Madoff (/ˈmeɪdɒf/; born April 29, 1938) is an American convicted of fraud and a former stockbroker, investment advisor, and financier. He is the former non-executive chairman of the NASDAQ stock market, and the admitted operator of a Ponzi scheme that is considered to be the largest financial fraud in U.S. history.
If only Bernie had incorporated and had stolen more money, the results might have been quite different.
The Obama administration, fearing the damage to the economy from a collapse of the Ponzi scheme, decides to pour in enough bailout money to make the investors whole. Not knowing how to unravel the mess after pouring in the money to cover up the disaster, they decide to pay Madoff huge bonuses in the hopes that he can figure out how to fix it. After all, corporations are so diffuse that you can’t figure out who is responsible for the corporate acts of the corporate person, so you must protect people from the damage that would come from too big to fail actually failing.
Moreover, you cannot imagine how a corporation could possibly succeed by making no investments with the investors’ money, let alone bad investments. So there is obviously no criminality or fraud to be found in the corporation. If there is fraud to be found it must be in the investors putting money into a corporation that promised unbelievable financial gains. The fact that Madoff had successfully invested people’s money for 20 or 30 years is no excuse for the investors not to realize that this couldn’t go on. Why were they stupid enough to think that past performance was indicative of future results? Maybe these investors had criminal intent for trying to take advantage of offers that clearly could not be fulfilled.
Bringing some investors to trial for their criminal activities ends up in a big flop when some former regulator comes in and explains to the jury that Madoff’s plan was what we call a Ponzi scheme. He is the real criminal, not the investors. (See previous post Sacramento Residents Found Not Guilty of Mortgage Fraud)
In the meantime there are all sorts of witnesses from inside the corporation who have evidence that Madoff was warned time and time again that his scheme was fraudulent and could not continue. Of course he fired those people if he couldn’t intimidate them into silence, and you cannot depend on people with an axe to grind. Nevertheless, these people might testify in a courtroom, convince a jury, and upset the bailout. So you string them along by pretending you care about their testimony. All the while you are plotting with Madoff about some fig leaves you can use to cover up the real fraud, and pretend that things have changed so that it cannot happen again.
If you read the article in my previous post, The $9 Billion Witness: Meet JPMorgan Chase’s Worst Nightmare, with the Madoff thought experience in mind, you might find it easier to understand. (By the way, the link to the article in the previous post has been fixed.)