You're Wrong About Madoff, and That Ignorance Will Hurt You

Bernard Madoff isn't the type of monster you think he is -- and that's dangerous.

Madoff owned homes in Florida, Manhattan, and southern France. He belonged to the exclusive Palm Beach Country Club, and he owned an 89-foot yacht.

Most of the money that paid for his lifestyle was pilfered from investors in his $65 billion Ponzi scheme; the man was clearly motivated by greed and a necessity to keep up appearances.

Right?

My guess is that 99% of people would agree with this. The problem that they would be 100% wrong.

And therein lies the problem with the Bernie Madoff saga: Investors are inferring the wrong moral from his story, and that means we're all missing out on one of the most important investing lessons of our time.

But first: Where did all the money come from?
Starting in the early 1960's, Bernie Madoff worked as a market maker for stocks and bonds that weren't good enough to be traded on the New York Stock Exchange. He did well, and as his career progressed, Madoff was in the center of a brokerage revolution.

Before the mid-1970s it would have been prohibitively expensive for the individual investor to buy large sums of stocks or bonds. Because commission rates became deregulated, however, the costs to buy and sell stocks plummeted. Madoff was an important cog in the wheel that opened investing to the masses.

Bernie and his brother profited greatly from this trend by creating one of the first computerized systems that matched buyers with sellers. The system was fast and cheap, and by the early 1990s Madoff Securities was executing 9% of the daily volume on the New York Stock Exchange.

Business was so successful that one competitor estimates that during the 1980s, Madoff made as much as $25 million per year. At this rate, he clearly brought in hundreds of millions of dollars over the course of his career. All of that money was both real and completely legal, so it was likely with this computerized market-making business that Madoff paid for life's luxuries.

So where's the scandal?
At about the same time Madoff began his career as a market maker, he began a side business. In fact, this "side business" could perhaps have been more akin to a hobby when it started.

Madoff began accepting money from family and friends and offered to invest it for them -- absolutely free of charge. It's difficult to tell when this "hobby" became a full-time fraud. Some say Madoff had always planned on running a Ponzi, but there's evidence that would indicate otherwise.

In 1992 he was forced to give back $441 million to investors because of wrongdoing on the part of some of his associates. This represented a large portion of Madoff's assets under management at the time, but he was able to pay investors back within eight days of a request. Such a quick turnaround suggests that the scheme could not have been in full swing by then.

Madoff himself actually claims the fraud started five years earlier. When the market crashed in 1987, he was forced to abandon his low-risk arbitrage techniques because his investors were calling to redeem their money. With his bread-and-butter opportunities becoming scarce, and the pressure to produce results mounting, he began falsifying returns. It was then that Madoff also started using new investors' money to pay old investors.

At the time, he considered this a short-term solution that he could quickly resolve; he had been growing his hobby -- legitimately, he claims -- for more than 20 years. The problem (as with any lie) is that it took bigger and bigger lies to continue covering up the original lie, until things ballooned out of control.

As word got out that Madoff was able to produce positive returns during down times, the real money started to flow in. Banco Santander, UBS, and Credit Suisse began approaching Madoff to manage money. A number of feeder funds were created to pool capital to Madoff. The funds made a killing because they charged investors for the opportunity to invest with Madoff, and Madoff didn't charge the feeder funds a penny.

Though he may not have made a killing from his scheme, there were other benefits. Madoff was held in extremely high regard. Family and friends were able to retire comfortably thanks to his successes, and he was routinely a guest of honor at major institutions. That kind of attention "feeds your ego," Madoff claimed, and coming clean would have ruined his reputation.

Madoff himself states that it was only around 2003 that he started to realize the extent of the problem he had created. By then, he thought continuing the fraud was his only choice -- ignoring the fact that he'd surely be defrauding millions more as time went on. And we all know what has happened since then.

Missing the point
In the aftermath of Madoff's confession, we spent a lot of ink here at the Fool going over lessons learned from the scandal. Certainly there were some valuable takeaways offered, but there was one buzzword used the most: "greed." To say that we should be wary of investing with greedy management is sound advice, but that isn't the lesson to be learned here.

Many assume that what motivated Madoff to squander the savings of millions of people was a desire to have more toys or pad his bank account. In fact, nothing could be further from the truth. In the end, the fraud stemmed from his desire to be viewed favorably and to please others. It overruled any allegiance he may have had to the truth.

Greed is dangerous, but if we're to learn anything from the Madoff scandal, it's that there's something far more toxic than greed: an inability to soberly confront an undesirable reality.

Skirting the facts of life may not sound nearly as sinister as greed, but that's what makes it so dangerous. Usually we can see greed coming from a mile away. Dishonesty, especially when it springs from an understandable desire to project a positive image, is far more likely to slip under our radar.

I'm not making apologies for Madoff; he is selfish and pathological. Instead, I think it's important to understand why he did what he did. If we don't understand that it was hubris -- not greed -- at the root of the scheme, the next Madoff will slip right under our radar, too. If that happens, we won't have any excuses for how we let it occur.

Fool contributor Brian Stoffel does not own shares in any of the companies mentioned. You can follow him on Twitter, where he goes by TMFStoffel.

The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (46) | Recommend This Article (96)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 27, 2012, at 4:49 PM, JohnMaxfield37 wrote:

    You make a good point about Madoff and what led him to do what he did. In terms of letting others like him slip under the radar, however, that yacht has long since sailed. On Wall Street, Madoffs are the rule and not the exception.

  • Report this Comment On April 27, 2012, at 5:15 PM, DJDynamicNC wrote:

    Skeptical thought and honest appraisal - the cornerstones of success.

    Great article highlighting that fact, well worthy of the Fool.

  • Report this Comment On April 27, 2012, at 5:54 PM, johnluma wrote:

    Based on this article I'm now more afraid: Greed isn't as scary as hubris, which is the real killer behavior. Well, hubris is everywhere, through all the halls of power, in every walk of life!

  • Report this Comment On April 27, 2012, at 5:59 PM, TMFCheesehead wrote:

    @John-

    I wonder, though, how many who might be perpetrating a fraud would do it for free? It's that slight of hand that causes most people to give Madoffs the benefit of the doubt, and I'm not sure (literally, I don't know) how common that is on Wall Street.

    @johnluma-

    >>in every walk of life!<< I would beg to differ there. There are lots of communities, sections of the country and world where that's not quite the case. Those places, though, usually don't stand out and are a little tougher to find.

    Brian Stoffel

  • Report this Comment On April 27, 2012, at 6:44 PM, xetn wrote:

    I think greed is very common, even among "Fools". Why else would you all be investing except in the hope of making a huge income/Profit?

    As for Madoff, I don't blame him so much as I blame the idiots who failed to do any due diligence before handing over their cash.

    Madoff also illustrates the fallacy that the government regulators will protect you from your own greed. Madoff was certainly greedy, but so were his "customers".

    In fact, I don't believe greed is a bad thing. It is certainly a motivator.

  • Report this Comment On April 27, 2012, at 7:07 PM, DAG1996MF wrote:

    Thank you for the best article I've read on Motley Fool to date. I couldn't agree more with both the analysis and the conclusions. When a man already has the best of everything money can buy, he obviously must have other motivations for continuing to amass fortunes. While angry emotional reactions to the results of Madoff's actions are certainly understandable, it's harmful to focus solely on a symptom, rather than the actual sickness that is causing the symptoms.

  • Report this Comment On April 27, 2012, at 11:03 PM, TMFCheesehead wrote:

    xetn,

    I'm not sure where the >>Madoff was certainly greedy<< comment comes from. As I pointed out, he literally made just about zilch off of his scheme.

    Brian Stoffel

  • Report this Comment On April 27, 2012, at 11:33 PM, xetn wrote:

    Just because he made zilch off of his scheme does not mean he wasn't greedy. It just means his scheme didn't pay off. Motivation is not the same as results.

    I consider myself as being somewhat greedy but many of my investments do not produce the outcome that I based my decisions on. In these cases, my greed did not produce as expected.

    You also failed to note the greed of the "investors" and for many, their lack of a return.

  • Report this Comment On April 28, 2012, at 7:06 AM, TMFCheesehead wrote:

    xetn-

    I agree, there were elements of greed at play, especially for some investors. And I agree that there's probably a sliding scale for greediness and times when it might be useful.

    However, this just doesn't make sense.

    >>It just means his scheme didn't pay off. Motivation is not the same as results.<<

    To me, at least, the evidence that's available is pretty clear that greed was never a motivating factor for Madoff. It was hubris. What facts lead you to believe otherwise?

    Brian Stoffel

  • Report this Comment On April 28, 2012, at 2:12 PM, SteinwayB731 wrote:

    Greed is the issue, xetn is right . . .Madoff isn't and wasn't the problem. The problem is with people who think their money is more valuable than everyone else's, and therefore it has to somehow work harder, earning privileged returns, returns that us regular folk somehow aren't entitled to. Bernie wasn't greedy . . . his 'clients' were. That's why he was able to swindle people, people who already had a lot of money, but were greedy (and stupid). Greedy to think their money was more valuable, and stupid enough to believe that Madoff could somehow return 20-25% every year when history shows otherwise. History, our best teacher, repeats itself. Smart guys like Ward, Ponzi and Madoff swindle people, and people are stupid enough to fall for it.

    A lot of famous people lost money with Madoff. I hate to see anyone lose money, but Madoff's 'victims' were famous, presumably smart people with lots of money and who should have known better. I have no sympathy for any of them. They just confirm the old saying on Wall Street 'pigs get fat, but hogs get slaughtered' and what PT Barnum said 'there's a sucker born every minute'.

  • Report this Comment On April 28, 2012, at 2:40 PM, TMFCheesehead wrote:

    @Steinway-

    Thanks for your thoughts. I would have to disagree with the wide brush you paint with. Surely, many of Madoff's victims were rich, and some were famous.

    Later in the fraud's life, however, many feeder funds invested money with Madoff. This is when his assets under management really grew. Because these funds were akin to mutual funds, which took money from wide swaths of people--and because they represented the latest investors in Madoff--there were many "average" citizens that lost everything.

    Of course, then huge problem here is the role the fund managers played, but that's a different topic for another time.

    Brian Stoffel

    Brian Stoffel

  • Report this Comment On April 28, 2012, at 3:37 PM, lowmaple wrote:

    In hind sight We can see many investments or speculations that if done perfectly could earn 25% annually. However to do that with vast sums of money is harder of course since people will copy you and you lose your advantage. The Motley Fool itself claims you can beat the market following their advise and they have abig following.

  • Report this Comment On April 28, 2012, at 4:30 PM, TMFCheesehead wrote:

    @lowmaple-

    Very keen insight. However, the big (institutional) money tends to do their own thing, and that still leaves us with a distinct advantage.

    Brian Stoffel

  • Report this Comment On April 28, 2012, at 4:49 PM, NotJesseL wrote:

    I think greed is bad. Its impossible to get enough money if you are truly greedy. Motivations like that are often called addictions. A lot of debt is due to greed and it often works against the person trying to get rich. On the other hand, if you can be content with what you have and whatever your income is, spend less that you get (from whatever source), that's not being greedy, but it is a recipe for happiness. That is often a better recipe for getting rich as well.

  • Report this Comment On April 28, 2012, at 10:09 PM, Shawnerz wrote:

    The next question then is, how do you dectect whether it's hubris or greed.

    Due dilligence only gets you so far. You can over analyze a deal and talk yourself out of a good investment.

    Again, if someone is cooking the books, due dilligence only gets you so far.

  • Report this Comment On April 29, 2012, at 4:26 PM, JadedFoolalex wrote:

    Gentle Fools...

    What we have here is a classic case of unbridled greed! Uncontrolled greed will surely give you what happened to the clients of Mr. Madoff. Greed, in and of itself, is not necessarily bad. It becomes bad when it goes out of control! Mr. Warren Buffett himself said that one should be "greedy when others are fearful and fearful when others are greedy" so controlled greed does have merit, but the important part is to control your greed! Greed is inherent in all of us! The important lesson is how much control do we have over our own greed??

    As to how to tell what is greed and what is hubris, I say educate yourself, trust your instincts and always remember that if something sounds too good to be true, it usually is!

  • Report this Comment On April 30, 2012, at 4:57 PM, LoadDrive wrote:

    Letting Madoff invest Your-Money: I'm Old-School, IF you want something done Right...Do it Yourself ! If a person can read, has a computer (With all the information out there) their is No Good reason not to invest your own money. A person may take a lost on some investments, but over the years, that person will come out ahead; And the Madoff's of the world will Never take you to the cleaners. P.S. don't forget to put YOUR Stop-Lost on your investments.

  • Report this Comment On April 30, 2012, at 5:22 PM, bridgco wrote:

    Great article. Now...how bout that "Star Struck" SEC????

  • Report this Comment On April 30, 2012, at 5:35 PM, TMFCheesehead wrote:

    @loaddrive-

    Taking charge of your investments is what we're all about at the Fool.

    @bridgco-

    That's another matter for a different article, but definitely a question worth asking.

    Brian Stoffel

  • Report this Comment On April 30, 2012, at 6:28 PM, DianaBHenriques wrote:

    Brian, my compliments on a lovely essay and a very insightful analysis -- one that matches many of my own conclusions in my book on the Madoff scandal.

    After several interviews, more than a year of emails and a few phone calls with Madoff -- and several years of research into his and his family's past -- my verdict was similar and simple. Madoff found it easier to live with himself as a liar than to live with himself as a failure.

    Is that an uncommon preference? Oh, puh-leeze. We have even come up with ways to sugar-coat our lies -- the little white ones, for example. Nobody in our society sugar-coats failure.

    I understand people's desire to comfort themselves with the notion that "greed is the root cause; avoid the greedy and you're safe." And true, people can be greedy for more than money -- status, power, affection, etc. But if you think greed is all that motivates someone like Madoff, you're way off the beam and ripe for the next Madoff.

    As I warned in my book, "in a world of lies, the most dangerous ones are those we tell ourselves."

    Diana B. Henriques, Author

    "The Wizard of Lies: Bernie Madoff and the Death of Trust"

  • Report this Comment On April 30, 2012, at 6:40 PM, packardwiley wrote:

    Maybe 'greed' isn't to entirely blame, but the article confuses where it attempts to clarify...

    "Hubris" is 'exaggerated pride or self-confidence', and is completely different from "a desire to be viewed favorably" and from "an inability to soberly confront an undesirable reality"... all of which are identified as the underlying issue.

    Anyway, it is great to hear that 'greed' is STILL good and not the root of this devil's decline.

  • Report this Comment On April 30, 2012, at 6:42 PM, chuyita wrote:

    I have thought about the Madoff case in terms of the way you describe it since the begining. The big banks and types like Goldman Sacks are not punished for their acts. My bet is that they are up to all kinds of schemes for which they are not investigated. Like too big to bust. Madoff did want to please his investors and as you describe it, he couldn't find a way out for himself. Lot's of politicians give out pardons, why not one for Madoff?

  • Report this Comment On April 30, 2012, at 7:29 PM, TMFCheesehead wrote:

    packardwiley-

    FWIW, when I submitted the piece, I used "Pride", it was later edited to "Hubris"

    @Ms. Henriques-

    Many thanks for your comments. Your analysis and articles you've written played a critical role in the development of this article. I think your work goes a long way to show how something like this--which probably started "innocently"--can lead to such disastrous consequences.

    By completely demonizing Madoff, we make him into an "Other" which makes it far more likely for us to fall for the same trick.

    Brian Stoffel

  • Report this Comment On April 30, 2012, at 10:17 PM, Darwood11 wrote:

    Good article.

    I was surprised last year when I discovered Madoff's history. It was a fascinating story and it made me look deeper into the issues of greed in society.

    Another interesting story is that of Angelo Mozilo, of "Countrywide Financial" fame. He began with some modest, altruistic goals. What happened to twist those original goals into what became another tale of greed, political intrigue and scandal? Countrywide is arguably the "poster child" for the entire real estate debacle. But my research into Mozilo indicates that he had real, altruistic goals. What went so horribly wrong?

    One definition that may ring true is "greed is a fear of not having enough." In other words, it isn't based on absolutes, such as specific numbers that would constitute "If I achieved XXXX I would have enough." It is also something that each and every one of us can succumb to. Madoff had access to a specific type of financial power. That allowed him to take advantage of others. How many of us would, or could, do the same if we too had such access, and accompanying cache in certain financial circles?

    Greed is certainly not a rarity. In Madoff's case, it seems to have been coupled with extreme hubris.

    If greed is about a perception that 'we don't have enough" then I suggest that we look in the mirror, and the investors and stock market mavens who frequent the Fool. From their comments and concerns I have the suspicion that some of us don't seem to have a good idea of "how much is enough." Ditto for those who played with fire in the housing market.

    Madoff was possibly an exception. A multi-multi-millionaire who wanted even more. Much, much more and went to great lengths to be "successful."

    The tales of Madoff, Skilling, Boesky, and Fastow, to name a few, have made me apprehensive of the possible traps in pursuing a life of wealth acquisition.

    Some seem to escape this gravity well, and others turn it into a game. But since when is life and finances simply a "game?"

    There are finite, and infinite games. I suggest it's useful to consider what is implied in the latter, from the perspective that I have a finite life on this planet, a finite time to accomplish whatever it is I am up to, and finite resources available. Unless I " game" the system.

  • Report this Comment On April 30, 2012, at 11:12 PM, lesailes wrote:

    A few years ago I was in the position of watching someone in Bernie's position. I can't say what caused him to tell people he could get them 15% tax free but my impression was that he was literally mad.

    However i do know why people gave him their money; it was the proceeds of "black" activity that had not been exposed to the taxman's view.

    For them there was little choice of investments and I rather enjoy the thought of the frustration they must have suffered when they realised how trapped they were

  • Report this Comment On May 01, 2012, at 12:53 AM, peterepeat wrote:

    I'm definitely missing the point.

    I'll agree with the conclusion presented that Madoff's hubris contributed to fraud. But there are a few caveats I have with the rest.

    First, it was stated toward the beginning of the article that "the man was clearly motivated by greed and a necessity to keep up appearances". This contrasts with last paragraph, "understand that it was hubris -- not greed -- at the root of the scheme". The article does not corroborate with itself on this major point. The former statement should stand.

    The Title of the article ends with "That Ignorance Will Hurt You". How can we be vigilant about hubris if we are not able to detect it? Not only this, but we generally do not have access to the Madoffs of the world to try to determine motives. Motives are difficult to ascertain for the multitudes, often motives are misread or assumed incorrectly. It would be more appropriate for a (forensic) psychologist who is trained in this area to analyze for hubris, greed etc. But that information would be confidential and not available to the general public BEFORE you invest.

    But why care, since Fools don't pay others to manage our own money. Perhaps I'm making a big assumption here, but Fools will not be going to anyone in the future (as the past) for free money management. Beware of the relative who makes an offer. Madoff may not have charged people for his services, but he definitely took their money. Free money management should be a dead giveaway; nobody works for free. This would be much easier to figure out than hubris. I suppose one could argue that a philanthropist works for free. Perhaps one of the expressions of Madoff's hubris was masquerading as a philanthropist. If so, that would be a fairly distorted conception of what a philanthropist actually is, even if he wasn't indicted.

    Lastly, the information to apprehend Madoff's Ponzi scheme was given to the SEC on a silver platter, but this STILL was not enough to stop him earlier. He got away with it for 25 YEARS! Had it not been for a great stock market crash he may still be out there. I don't think that any information about hubris would have done the trick. As a matter of fact, if Madoff's hubris was made public, another human attribute, the tendency for denial, would have come into play for investors. I'll bet my bottom dollar people would have shrugged it off.

    Given all of the aforementioned, I'm not sure how the ignorance of a person's hubris is going to financially burn me. This is why I say I'm definitely missing the point.

    For my purposes, I'm going to conclude that hubris is not the only factor involved in getting burned. Madoff has his own personality and was in unique circumstances during crazy times. It's definitive that you can get burned solely due to greed - and the article didn't miss that point. Fraud can also come from hubris, as was illustrated. Put the two together (greed, hubris) and you have quite a pairing. Throw in corruption and big money (do they go hand-in-hand?), and you have a recipe. Human nature is to cling to one detail. We cannot afford to be simpletons, because rarely will one factor be the prime mover. Madoff's story is interesting to analyze and we should take note, as Fool.com has. Your article contains some interesting material worth reading.

    There are plenty of people out there with hubris that didn't have access to Madoff's clients, or other wealth, especially during the crises of 1987. Nor would they have responded the way he did. So let's not go too far with one thing and chalk it all up to that.

  • Report this Comment On May 01, 2012, at 2:31 AM, RMartel wrote:

    "Madoff himself actually claims the fraud started five years earlier. When the market crashed in 1987, he was forced to abandon his low-risk arbitrage techniques because his investors were calling to redeem their money. With his bread-and-butter opportunities becoming scarce, and the pressure to produce results mounting, he began falsifying returns. It was then that Madoff also started using new investors' money to pay old investors."

    _______________________________

    That was the start of the fraud and it was caused by greed. Neither hubris nor pride were the root cause. One or both may have come to the fore because of greed, and one or both may have been the cause of his inability to admit to himself or anyone else that he was defrauding his customers in order to seem more successful to himself and others, but greed was the core 'value' that led to all of that. He doesn't say that he had lost money at that point in time. He had become less successful, both because he lost business and because he wasn't able to produce outsize returns for his clients, but he was very determined to stay in the business of managing a large portfolio of other people's money in order to make money for himself. No matter what he chooses to say about himself, he was not running a charity. If he had been, he would have been honest with his clients and admitted that he no longer had the advantage of the techniques he'd been using.

    On another note, some commenters don't seem to understand that greed is a very straightforward and largely very negative result of a naturally developed and inherited tendency of the human species to hoard. In a sense, the human species is a very large and somewhat more intelligent squirrel. Hoarding, if not taken to pointless extremes, is a very useful survival technique as it is for the squirrel. Taken to extremes, it can become very silly and/or very detrimental to the wellbeing of other humans...and we usually call that behavior 'greed'.

  • Report this Comment On May 01, 2012, at 6:56 AM, mapartha wrote:

    As has been told in the Geeta, it seems Madoff was deluded by one of the six enemies of humans - mada (or pride), the other five being kama (or lust), krodha (or anger), lobha (or greed), moha (or delusory emotional attachment), and matsarya (or envy/jealousy).

  • Report this Comment On May 01, 2012, at 9:23 AM, TMFLomax wrote:

    Brian, this is a great piece. I've often wondered how much motivation base "greed" is, and how much of it is really hubris or the intoxicating sense of power certain people derive over others through things like acquiring money in any way possible. I sometimes think greed is just a symptom, not the real cause of a lot of negative behavior. "What will people think" can be a major driver of all kinds of negative actions. (And unfortunately, our society often equates lots of money with why people should "think better" of someone or even themselves. Not so good.)

    When the Satyam fraud came out years ago, Ramalinga Raju said the situation had become like, "riding the tiger, not knowing how to get off without being eaten." Some of this is definitely in the realm of general failings in human nature, many of which are very emotional, that we can only hope people can work beyond.

    Thanks for the insightful and thought-provoking article! I think it's great for all of us to contemplate the "Why?" in life and certain situations. Great stuff.

    Alyce

  • Report this Comment On May 01, 2012, at 10:15 AM, TMFCheesehead wrote:

    @Darwood11-

    Thanks for the insights, greatly appreciated!

    @peterepeat-

    The statement that he "needed to keep up appearances" was just setting the reader up. It was pointing out a commonly misheld belief that I was working to deconstruct.

    Your further points about hubris are well taken. I guess the bigger point may be that greed isn't the only thing that motivates others to do wrong. One way that I apply that knowledge: when I consistently see companies meet or beat earnings by a penny, but their FCF--over many, many years--doesn't add up. Sure, execs might be doctoring the books to get a bonus, but more than likely, something may be awry because they wanted to stay in the good graces of Wall Street.

    @RMartel-

    You said: >>he was very determined to stay in the business of managing a large portfolio of other people's money in order to make money for himself.<<

    There are no facts to support that statement.

    @Alyce-

    Many thanks.

    Brian Stoffel

  • Report this Comment On May 01, 2012, at 10:38 AM, TomEaton11 wrote:

    Excellent essay.

  • Report this Comment On May 01, 2012, at 11:07 AM, AaronP2575 wrote:

    Fantastic article. Before the article I was certain that greed fueled Madoff.

  • Report this Comment On May 01, 2012, at 11:43 AM, alleongto wrote:

    great article. the 2 are linked. greed (no vector) just accumulation - useful or non-useful purpose.

    however, to look good is normal. eveyrone wants to be perceived as a good person. lying to do it is the issue. making mistakes happens. people are sympathic and will give you time to recover or correct. being upfront... to the degree possible will re-generate trust.

    i think madoff's lesson may also have been not to help those who did not deserve help (funding greed to hurt others).

  • Report this Comment On May 01, 2012, at 12:39 PM, actuary99 wrote:

    I enjoyed the article.

    I think the discussion that follows it focuses too much on what "greed" means to people. It is not that "greed is good" or the "greed is bad", it's that "greed IS". Everyone is greedy but almost no one wants to cause harm to others.

    The problem comes when someone is able to successfully rationalize their selfish actions that hurt others, or repress the realizations of the hurt their actions are/will cause.

    It seems for Madoff no one was there to hold him accountable except for himself, and the hurt he caused was delayed, making it easier to ignore.

    It's kind of like congress raiding the social security trust fund, except there ARE people to hold them accountable, but apparently they are easy to ignore.

  • Report this Comment On May 01, 2012, at 12:56 PM, washingsocks wrote:

    "it was likely with this computerized market-making business that Madoff paid for life's luxuries"

    The crux of your statement that 99% of the people are 100% wrong seems to rely on this supposition which you stated is "likely", not certain. How do you know, 100%, that Madoff still had this money, that it was liquid, that he didn't invest it the same (or worse) as he did his clients and lose much of it? Or, that he just hadn't spent it? How do you know he did not siphon large amounts of funds from investors to continue his lavish lifestyle which, in turn, maintained the all important "image"?

    The lessons you explain in the article are important, very important. I am just not convinced Mr. Madoff is the example from which those lessons are to be learned.

  • Report this Comment On May 01, 2012, at 4:28 PM, TMFCheesehead wrote:

    @washingsocks-

    I can certainly appreciate your skepticism. There's no way to prove with 100% certainty that Madoff didn't loot from the fun. In fact, there was an instance of him shifting a small amount to his core business once.

    But from a larger point of view, two things to remember:

    1) There's no evidence he really used funds on himself.

    2) Taking funds out for himself would've actually hurt himself, as it would make it harder for him to reimburse investors and bring him closer to the brink.

    Brian Stoffel

  • Report this Comment On May 01, 2012, at 8:41 PM, umh wrote:

    Trying to figure out why people do things is usually a waste of time. We may need to determine the motivation of our children or long term friends whose behavior has changed. On the other hand spending excessive time on figuring out why someone hurts people is dangerous. I've met people similar to Madoff in my life and the best advice I have is to avoid them at all cost.

  • Report this Comment On May 02, 2012, at 11:59 AM, TwinMount wrote:

    umh is correct to advise avoiding these people at all cost. I think that Bernie M. is probably a psychopath who has no feelings for other people and no concerns about his actions. These people are dangerous because they are the ultimate liars and they can fool a great many people including professional investigators.

  • Report this Comment On May 02, 2012, at 8:09 PM, hbofbyu wrote:

    The visual I have in my head is Madoff holding the anchor rope of a hot air balloon. The balloon starts to rise and he can no longer hold it down. He hangs on hoping it will return to the ground but after he is higher than 30 or 40 feet,letting go would mean death. His only option was to ride it out until (or if) he got caught. He was well past the point of no return 20 years ago.

    This was not about greed. It was about saving face and trying to avoid jail time.

    Read "Inside the Third Reich" by Albert Speer and you will see how one can go from upstanding person to a genocidal player for Adolf Hitler without ever making a concise immoral decision.

    What scares you is that Madoff is not that much different than you and me.

  • Report this Comment On May 04, 2012, at 1:46 PM, tylee100 wrote:

    Great article. I agree with you. Please do a followup article on how we can detect a person in power who is living a lie to save their pride. I would guess that there are few ways to detect this and that's why Madoff was so successful in eluding detection for so many years.

    As a start to your followup article, I would include the following points:

    1. Unrealistic returns need to be avoided or at least examined thoroughly. Some investors did just that and stayed away from investing with Madoff.

    2. Is this a one man/woman show? If so, red flags should be raised. A team is less likely to contain the truth for years.

    3. Just because the big boys are investing with someone does not mean they have done their due diligence. They are subject to smoozing too.

    4. At least check out the auditor. Do a web search on them.

    So that should get you started. Good luck and thanks for the fine article.

  • Report this Comment On May 04, 2012, at 4:51 PM, RadWriter wrote:

    The article talks about homes and a yacht Madoff owned. It assumes that he bought them long ago with money he earned honestly, presumably. But the article at no time actually said when those luxuries were bought. So all we have is the author's presumption and no evidence at all.

  • Report this Comment On May 05, 2012, at 12:20 PM, BruceSto wrote:

    You have summed up his actions very well. I don't agree that pride drove him alone. His fear of not being under high regard in the eyes of others caused him to rationalize his actions. The rationalizing of bad actions to meet a good goal, making money for friends in this case, is the face of evil. Guarding against that is very hard.

  • Report this Comment On May 05, 2012, at 9:31 PM, TMFCheesehead wrote:

    @BruceSto-

    I guess it's semantics, because I would call that "pride".

    Brian Stoffel

  • Report this Comment On May 06, 2012, at 2:17 PM, woodNfish wrote:

    You had to be a friend of Madoff or a friend of a friend to invest with him. The fact is that the people Madoff thought they were getting in on an exclusive deal, and they were, but not the kind they thought it would be. Madoff screwed his friends and his friends friends, and their families.

    The fact is, if you are a Fool you are going to get a deal like this about as soon as you are going to be offered part of an IPO; that is, never.

    I really don't care what Madoff's reason for doing what he did is. He'll die in prison where he belongs and the people who thought they had an exclusive edge on everyone else got theirs. Those are the same people who would actively take part in insider trading if they could, and they were too stupid to understand that if something looks to good to be true, it probably is. After all Madoff was guaranteeing they would never lose their principal. That is where their greed over-road their common sense.

    There is nothing wrong with greed. Our economy and the market is built on it. The problem Madoff and his victims had was avarice, not greed, and not a desire to be liked.

  • Report this Comment On May 09, 2012, at 1:37 PM, 48ozhalfgallons wrote:

    Bernie's yacht was 89 feet; Qatar's prime minister's is 436 feet. Size does matter.

  • Report this Comment On May 15, 2012, at 2:42 PM, TheClambelly wrote:

    With all due respect...are you out of your mind? I commend you on your Madoff research, but you're missing an entire point about his main business, BLMIS. Of COURSE he stole profits from that scam. He never actually bought the stocks he pretended to trade! I don't know whose Kool-Aid you've been drinking, but tell my family and me, and the other 3,000 victims of Madoff's scam who, as my family did, lost absolutely EVERYTHING, that he didn't steal from his Ponzi scheme. OK...technically, he took a salary from his company. But you fail to report that his salary was generated by investors' deposits, and those deposits were intended for use to buy and sell securities. HE DIDN'T TRADE REAL STOCKS. By the way, his sons were both heads of trade. Of course, how could they know what was going on? They were only the heads of trade. The SEC didn't know either. No matter that whistle blowers such as Harry Markopolos went to them several times over the course of 9 years and they either ignored him or threatened him. And of course, forget Peter Madoff and his daughter, Shana. Peter was Chief Compliance Officer and his daughter, Shana was another compliance officer and the compliance attorney. They didn't know that no trades were being made either, 'eh? Anyone who doubts that Madoff made-off with cash from his depositors is a complete moron. Guess that would include you, Mr. Stoffel. Puhleeze.

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