Bernard Madoff and I - updated January 1, 2015

On a personal level I don't really understand how Wall Street makes money. I am not in that league.

But do all the movie stars, sport stars, Internet entrepreneurs, winners of lotteries know how Wall Street works? Ultimately, do these chief economists and Harvard Business School grads  know how Wall Street works? Probably they can give courses and talk for hours, but they don't know either.

There is only one explanation; Faith. "Faith becomes necessary only when we cannot directly experience the object with our senses or understand the reason for doing something." Chaim Kramer writes

Faith in people like  Mr. Madoff? We love to fabricate idols, because we need them so much to feel protected from our own doubts and fears. Having a lot of money, I mean really a lot of money, brings insecurity and nightmarish demons. We need people like Mr. Madoff to bring deliverance to the rich

Bernard Madoff was the Ponzi scheme operator  using the money of the wealthiest people in the world. He was sentenced to 150 years of prison and has 300 minutes monthly quota to speak over the phone from his prison in North Carolina. He doesn't use his allocation because he doesn't "have anyone to talk to."

His wife does not speak to him. His brother Peter, who  is languishing in another prison sentenced for 10 years, does not speak to him. His son Andrew  who is battling stage-four blood cancer does not speak to him ( *) and his other son, Mark committed suicide.

I read all these from an interview in WSJ today:

[Madoff] wanted to justify the actions that resulted in his 150-year prison term. He said he felt "trapped" into the con by other people and always thought he would be able to get himself out of it.

His investors, he said, were "sophisticated people" and should have known better.

"People asked me all the time, how did I do it. And I refused to tell them, and they still invested," he said. "Things have to make sense to you. You should ask good questions."

He insisted banks knew about his fraud and were complicit in the scheme for years

Norb Vonnegut, a financial advisor, tried to snatch some customers away from Madoff. He writes:

Mr. Madoff didn't have clients. He had a cult of happy, supremely loyal investors....

After a fierce struggle, I once managed to wrest a $5 million account away from Mr. Madoff. "It's crazy for you to put all your eggs in one basket," I told the client, who parked more than ten times that number in the Ponzi scheme and played golf with the man himself.

When I left my brokerage firm for greener pastures at a registered investment adviser, my client refused to follow. He moved his money back to Mr. Madoff instead. The returns were better and he wanted to "simplify" his affairs by consolidating everything in one shop. I should have pushed harder.

At the bottom of this blog, see a list of clients who lost money. My school, the Technion  (the MIT of Israel) is on the list. So is Yeshiva University, Steven Spielberg foundation, the largest apartment landlord in New York City, BBVA one of the top banks in the world, Royal Bank of Scotland and Henry Kauffman, Salomon Bros Chief economist. What about Ascot Partners, run by Jacob Ezra Merkin, GMAC’s chairman?

Was Madoff evil? Are his clients naive? Or stupid? Then why some of the most sophisticated investors, the smartest entrepreneurs are on the list?

This is the moment when Madoff discovered he arrived at the end:

In 2008 at the Palm Beach Country Club in Florida, Madoff said, and he had "a young black kid" for a caddy, and the caddy was buying and selling homes.

"He said he didn't need credit. He would buy homes and flip them for a profit," Mr. Madoff recalled. "I told my wife, 'This is the end.' "

The end of the housing boom would be a contributing factor in the collapse of his fraud, as many investors began seeking to cash out as the economy stalled and financial assets sank in value.

If the reverse would have had happen, Madoff would have been still living in his 18 million residence in New York, surrounded by his adoring family and worshipped by his clients How many Ponzi schemes went un-detected because of favorable economic conditions, that occurred at the right time? (**)

In a secular world, even if one has "friends in high places" , he needs to be aware that at any time "a new king" could arise, or that his former friend turn against him. In truth, our security comes directly from God.

 A pharaoh, now believed to be of Hyksos lineage, who “didn't know Josef". enslaved his descendants

Top cult entrepreneurial figures in Silicon Valley know that. We live all one inch away from success, adulation and wealth and one inch away from failure, bankruptcy, misery and being forgotten

Read also part 2 of this story

Notes

(*) Andrew Madoff died after a long battle with cancer on 09/03/2014


(**) The movie Arbitrage, starring Richard Gere and written by Nicholas Jarecki alludes to Madoff.

Gere acts as a financial baron, named Miller, who has everything, like Madoff. He cheats and is about to fall, but the end of movie, unexpectedly survives and maintains all the privileges, money and reputation. The character that Richard Gere plays in "Arbitrage" has been described as a Bernie Madoff-like figure, Although the director writer flatly denies the resemblance, and that Richard Gere is better looking than Madoff,  the film clearly describes a typical story where everyone remains honest, if not caught, Because on a smaller scale, we all commit sins and tell lies.

About another movie, Match Point written by Woody Allen, the director says in an interview:

"People are afraid to acknowledge or to face what huge dependency they have on luck,". "There's a tendency to think we have great control over our lives or some control, but the truth of the matter is that we don't have the control that you think. You think you have control - you think if you get up in the morning, you exercise, you eat right and don't smoke, you will be healthy. But it doesn't work that way - you still get cancer and you still get hit by a bus. So much is luck. But if you face that, it's a very unpleasant feeling. You like to feel 'I have some control over events' ... You do have some control, but much less than you think, and that's why I wanted to make the movie."

(***) Leaked Palantir Doc Reveals Uses, Specific Functions And Key Clients
This article from Techcrunch states

Palantir’s data analysis solution targets three industries: government, the finance sector and legal research. Each of these industries must wrestle with massive sets of data. To do this, Palantir’s toolsets are aimed at massive data caches, allowing litigators and the police to make connections otherwise invisible. For example, a firm hired by the Securities Investment Protection Corporation used Palantir’s software to sort through the mountains of data, over 40 years of records, to convict Ponzi schemer Bernie Madoff

 _____________________________________________________________

Client	Client Type	Exposure
Wunderkinder Foundation, run by Steven Spielberg	Charity	Unknown
The Horowitz Association	Charity	Unknown, reports of up to $800 million
Sterling Equities, run by Fred Wilpon, owner of the New York Mets	Financial firm	Unknown
Stephen Siegel and other executives at CB Richard Ellis	Commercial real estate	Unknown
Several brokers at Newmark Knight Frank	Commercial real estate	Unknown
Senator Frank R. Lautenberg’s charitable foundation	Charity	Unknown
Notz Stucki	Financial firm	Unknown
Norman Braman, former owner of the Philadelphia Eagles	Individual	Unknown
JEHT Foundation, will close	Charity	Unknown
Jeffrey Katzenberg, DreamWorks Animation SKG	Individual	Unknown
Henry Kaufman, former Salomon Brothers chief economist	Individual	Unknown
Edward Blumenfeld, owner of Blumenfeld Development Group	Commercial real estate	Unknown
Charity of Leonard Litwin, one of New York's largest apartment landlords	Charity	Unknown
Chais Family Foundation	Charity	Unknown
Bramdean Alternatives	Financial firm	About 9.5 percent of assets
Mediobanca	Financial firm	$671,000
Clal Insurance	Insurer	$778,000
SAR Academy	Chartiy	About $1.2 million
Caisse des Dépôts et Consignations	Financial Firm	$1.4 million
Gift of Life Bone Marrow Foundation	Charity	$1.8 million
New York Law School	Charity	at least $3 million
Mirabaud	Financial firm	Several million dollars
Congregation Kehilath Jeshurun	Charity	$3.5 million
CNP Assurances	Insurer	$4.1 million
North Shore-Long Island Jewish Health System	Charity	$5.7 million
Neue Privat Bank	Financial firm	$5 million
Maimonides School	Charity	$5 million
Ramaz School	Charity	$6 million
Julian J. Levitt Foundation	Charity	$6 million
Jewish Federation of Greater Los Angeles	Charity	$6.4 million
Technion-Israel Institute of Technology	Charity	$6.5 million
Robert I. Lappin Charitable Foundation, supports student exchange programs to Israel	Charity	$7 million
KAS Bank	Financial firm	$9 million
Korea Teachers Pension	Pension fund	$9.1 million
Jewish Federation of Greater Washington	Charity	$10 million
Mitsubishi UFJ Financial Group	Financial firm	$11 million
Harel Insurance	Insurer	$14.2 million
Massachusetts state pension fund	Pension fund	$12 million
Phoenix Holdings	Investment firm	$12.4 million
Société Générale	Financial firm	$13.8 million
Groupama	Insurer	$13.6 million
Alicia Koplowitz	Individual	$14 million
Elie Wiesel Foundation for Humanity	Charity	$15.2 million, almost all of the Foundation's assets
Jewish Community Foundation of Los Angeles	Charity	$18 million
Madoff Family Foundation	Charity	$19 million
Tufts University	Charity	$20 million
Sumitomo Life Insurance	Insurer	$22 million
Mortimer B. Zuckerman Charitable Remainder Trust	Charity	$30 million
Royal Bank of Canada	Financial firm	Under $40 million
Fairfield, Conn. pension fund	Pension fund	$42 million
Great Eastern Holdings	Insurer	$44 million
Banque Bénédict Hentsch	Financial firm	$48 million
Korea Life Insurance	Insurer	$50 million
Unione di Banche Italiane	Financial firm	$85 million
Hadassah, the Women's Zionist Organization of America	Charity	$90 million
Yeshiva University	Charity	$100 to $125 million
UniCredit	Financial firm	$102.5 million
Dexia	Financial firm	$107 million
Credit Mutuel	Financial firm	$124 million
Aozora Bank	Financial firm	$137 million
Carl & Ruth Shapiro Family Foundation	Charity	$145 million
M&B Capital Partners	Financial firm	$187.9 million
EIM Group	Financial firm	$230 million
Pioneer Alternative Investments	Financial firm	About $280 million in assets
Maxam Capital Management	Financial firm	$280 million
Nomura Holdings	Financial firm	$302 million
Reichmuth, the Reichmuth Matterhorn fund	Financial firm	$330 million
Man Group	Financial firm	$360 million
Fix Asset Management	Financial firm	$400 million
BBVA	Financial firm	$404 million
BNP Paribas	Financial firm	up to $478 million
Carl Shapiro	Individual	$545 million
, ,	Financial firm	up to $609 million
Natixis	Financial firm	$614 million
Benbassat	Financial firm	$935 million
Picower Foundation	Charity	$958 million
HSBC Holdings	Financial firm	$1 billion
Union Bancaire Privee	Financial firm	under $1.08 billion
Fortis Bank Netherlands	Financial firm	$1.4 billion
Access International Advisors	Financial firm	$1.4 billion
Ascot Partners, run by Jacob Ezra Merkin, GMAC’s chairman	Financial firm	Most of the firm's $1.8 billion in assets
Bank Medici	Financial firm	$2.1 billion
Banco Santander, Optimal Investment Services	Financial firm	$3.1 billion of client exposure
Tremont Group Holdings	Financial firm	$3.3 billion
Kingate Management	Financial firm	$3.5 billion
Fairfield Greenwich Group, run by Walter Noel	Financial firm	$7.5 billion