The fall-out

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One of Bernie Madoff's last night's at home in 2009. Photo: JH

Thursday, April 15, 2021.  It was a sunny day, yesterday in New York and the temp went up to the low 70s midday, dropping to the 50s at night. Spring is the hopeful time when the planting begins in our lives. In my neighborhood the school buses are out there in the morning and then mid-afternoon. The delivery trucks are out big time. The neighborhood was busy with strollers and dog walkers and little ones – too young for school – on two and three wheel scooters.

I had dinner last night at Sette Mezzo with Mary Hilliard, the photographer who took those photos of the Malcolm Forbes party in Morocco in 1990. She said it was a wonderful trip although not everyone was happy with their assigned rooms, or hotel or the food, or the “warm” champagne, or the plane. We had a good laugh over that. It is human nature, it seems, that the more privilege available the more vulnerable to criticism, rather than the simple pleasure of the experience.

Mary photographed a number of occasions for Malcolm Forbes over the years, including some of his family Christmas cards. He supervised them all, organizing the positions of each of his children and their families in a group photo. He was not in the last one, the year before he died, because he and his wife had separated. This particular one was shot in a private pier on the Hudson where his yacht was anchored. So the final shot was his sons and their families, and The Highlander in the water behind them. Mary said he was a very nice man to work with, and that he liked overseeing every aspect of a project, mainly editing and directing. The quintessential executive. He knew what he wanted. 

Bernie Madoff’s mug shot, 2009.

Bernie Madoff died yesterday, as the world knows by now, in a prison medical center in North Carolina. He came to fame and notoriety for creating the greatest securities swindle in history ($$-wise) “investing” his clients money, guaranteeing them annual incomes of 10 to 12% of their total investment. His clients were very wealthy, investing many millions.  But it turned out, he actually didn’t invest in the markets. He’d take Paul’s investment and use it to pay Peter’s annual income along with many others. 

Hedge funds, CEOs, movie stars, sports stars, Steven Spielberg, Kevin Bacon, Sandy Koufax; CEOs, heirs and heiresses, Bernie was guru to one and all. The final toll of his “investments” was approximately $17.5 billion. Gone. 

He was very well known in the financial world and the social worlds of his clients. He was, after all, a great success and a genius investor providing that 12% annually.  When the original story broke on December 7, 2008 (another day “living in infamy”) it turned out that I knew a lot of people who knew Bernie, and a lot who had their money with Bernie. 

He was a legend in his social and financial circles, a giant; like a rock-star in that financial realm. His clients thought he was a genius. People literally begged him to take their money. Why? Because he delivered.

He wasn’t some fly-by-night. He had solid relationships with clients of twenty and thirty years. They held him in the highest esteem. You could retire with only ten million and have that $600,000 – $700,000 a year to live in Palm Beach, in New York, as sure as the Sun comes up and the Moon goes down.

Although there were those – smart financial people, investors who weren’t so sure. One man told me he had some money with Bernie a long time ago but couldn’t figure out “how it worked.” So he took his money out, recalling the sage advice of an elder who warned: “If it sounds too good to be true, it probably is.”

Ezra Merkin, the deeply respected hedge fund owner, business executive and philanthropist thought so highly of Bernie that his Ascot Fund became a feeder fund for Bernie Madoff and his genius jillions. Not everybody could invest with Bernie. It was a most exclusive club. That was part of Ezra Merkin’s genius: those who couldn’t get Bernie to take them could buy into Merkin’s fund and get the same. Ascot, according to the reports that were circulating, had a $1.8 billion participation in Bernie Madoff’s genius. 

So Ascot had many millionaires and billionaires who were big losers. There was another fund with more than $7 billion invested with Bernie. And why would they do this, given that the investor was smart and shrewd? Because it was a no-brainer: The hedge (feeder) fund takes the money from the investor, charges its annual fee as well as percentage of the annual appreciation and simply hands the dough over to Bernie and pays his brokerage fees. Let your fingers do the walking, as they say, and everybody wins.

I don’t know quite how it happened but that first week of December 2008 was The End for Bernie. He evidently confessed that it was just one great big Ponzi scheme. The greatest in the history of the world. So far. 

“He’s God’s avenging angel,” remarked a man close to the situation who had family and friends invested with Bernie.  “Many of these people were arrogant and thought they were smarter because they were with Bernie and making money all the time. They were tempted by something that their greatest instincts must have told them didn’t add up. It’s a dybbuk — unfortunately taking a lot of innocent people with it.”

The fall-out was impossible to assess at this early stage; only that it was in the billions. People thought it would have a deep effect on the social life in New York, Palm Beach and Southampton. The gossip was about who had lost and how much? And how that would change their lives and especially lifestyle. Schadenfreude perched on many a shoulder. Along with shock and self-pity perched on many a shoulder.

The opinion within Bernie Madoff’s world, the community of the very rich Jewish families who were either invested with him or had their foundations invested with him, was more than harsh. As a younger member of that community explained to me, “These were a group of people who have an awful lot of money and wanted to believe they were smarter than everybody else. Bernie was their genius. Knowing Bernie Madoff was a kind of power in itself.”

They are shamed in the community,” he said. “This has been the most horrible thing, almost as if God were saying: ‘you people have too much, you give too little, you’re too vain and greedy and we’re gonna send the dark left hand of God, Bernie Madoff and fleece you guys.”

“There are very few innocent victims,” he continued, “These people were guilty for being stupid, for being greedy. How could (some of these hedge fund managers) not know there was something wrong with Bernie’s numbers?”

How did this happen to so many people, so many institutions, so many charitable foundations?

Thirteen years ago, 2008, the boom years got very reckless and widespread. We’d been living in a time when men (and some women) were paying themselves annual fortunes great enough for several lifetimes while at the same time cutting labor costs and lobbying against income tax. So what we have wanted quite simply was: MORE. And we got it. MORE is still the operative word. Bernie Madoff simply gave them what they wanted. MORE.

It is tempting to reproach the losers, especially without knowing what it feels like to lose your money. It doesn’t matter the sum — five bucks or ten million. We’re only human and money is at the center of everyone’s life and existence, and always has been since the beginning of civilization. I asked someone who knew Bernie Madoff what the man himself was like. “He’s a man with a lot of anger,” my friend told me. “He hates God for what happened in his life. He’s also a man of immense charm.”

He was tried and sentenced to 150 years. That was 12 years ago. He was 70. It was a terrible experience for his family also.  One son took his own life on the second anniversary of his father’s sentence. I can’t imagine how terrible that must have been for the father and mother. His other son died of cancer. And Mrs. Madoff  became a recluse to avoid the damnation of her husband.

As for the investors, over the years, it has been reported, more than $14 of the $17 billion was recovered and distributed to the investors.

In the early 2000s when the economic and financial aspects of our world was booming, I asked John Dizard, the very smart and heady financial columnist for the FT, what was at the root of this great financial boom we were experiencing. 

He replied with one word: “Liquidity.”

“Meaning …?”

“The world is awash in liquidity, more than ever before and everywhere …”

“How long will this go on?”

He didn’t know.

“Will it end?”

“Oh yes,” he smiled ruefully, “it’ll end in tears.”

Another wise friend of mine who makes his living as an investor answered the same question this way: “Once confidence is lost, there’s no telling where it will all end.”

For Bernie Madoff, it had finally ended.

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