Cheerio then Bernie Madoff.
The silver-haired villain, who has just died, might just be the unluckiest con man on Wall Street. Why? He got caught. And then he got jailed.
For that to happen to one of the thieves in suits on America’s street of dreams is vanishingly rare.
In the movie Boiler Room, Giovanni Ribisi’s character describes working as a stockbroker as “the white-boy way of slinging crack rock”. The description holds good for large parts of the finance industry. But they rarely face the sort of consequences the legal system metes out to those slinging actual crack rock.
Madoff’s ill-fortune was for his scheme to be exposed by an even greater con.
The one time Wall Street legend, chair of the Nasdaq stock exchange, pillar of society, was exposed as a sleazy huckster in the fall out from the financial crisis.
With the world facing economic collapse – there were stories doing the rounds of hedge fund managers looking to buy sheep herds to get a leg up in a future barter economy – people suddenly started knocking at Madoff’s door to ask for their money.
For the uninitiated, Ponzi schemes, pyramid investment schemes on these shores, require money to keep rolling in so it can be paid out to other investors if and when they ask for it.
Madoff – whose clients ranged from charitable foundations and pension funds, to banks and universities, to Wall Street fat cats and a number of ordinary people – could do that in a stable economy because he was reporting such stellar returns that people queued up at his door.
But the banks collapsing led to his customers deciding that they wanted their cash to hide under their beds. As a result, the scale of the scheme – paper losses totalled $65bn (£47bn) – became so blindingly obvious that Madoff couldn’t avoid the hammer bearing down on him. A 150-year prison term was the result.
The people behind the still bigger scandal that brought him down? The bankers who packaged up mortgages mis-sold to borrowers whose only chance of repaying them was a lottery win, gave them a fancy name (collateralised debt obligations), and distributed them around the world?
Not so much as a suspended sentence between them. There was the odd fine here and there, a couple of bans handed out, and quite a few redundancies. But that was it.
And it’s almost always that way.
Madoff’s scheme wasn’t the only scandal coughed up by the crisis. It wasn’t long before it emerged that some of the world’s biggest markets (interest rates, foreign exchange etc) were being rigged.
Once again, almost no one was brought to book. Institutions paid heavy fines (as they did for the dodgy mortgages) but crucially, individuals mostly escaped censure and those who were brought to book increasingly look like patsies. They weren’t exactly hiding what they were doing and they supposed to be supervised.
There’s something else that’s rigged for most of the people who sling white boy crack rock, or who supervise them: the world’s legal/regulatory systems.
Most of the time, prosecuting the perpetrators of financial scandal takes up so much energy, and those in the firing lines have such good legal representation, that a fine is the worst they can expect, maybe some probation if they’re in the US and cop a plea.
There’s the occasional case like Madoff that’s so staggering it demands a response but it’s the exception that proves the rule.
On Wall Street, in the City of London, around the world’s other financial centres, the drug of high finance has an equal ability to destroy lives and livelihoods at every level of society as the illegal kind. You can start with the poor householders sold were those dodgy mortgages, who lost their homes through foreclosures, and work your way up from there.
It’s hard to pinpoint where people got hurt through market rigging, but there is a long list of other scandals in which people have suffered horribly, and where the perpetrators subsequently had their wrists slapped at best.
So yes, Madoff was unlucky in having to trade his expensively tailored suit in for an orange jumpsuit. He even whined that he’d suffered after other people connected to the scandal took their own lives.
“Don’t they realise it’s our job to take people’s money,” said one titan of finance to me, while complaining about their company having its arm twisted to join a “voluntary” restitution scheme after a scandal in which, once again, no individuals were really punished. They weren’t joking. They were genuinely furious.
Financiers are going to keep on stealing ordinary people’s money because, unless they’re very unlucky like Madoff, they’re allowed to get away with it.
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