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The Nation.

January 5, 2009

Alexander Cockburn
A Giant Ponzi Scheme
We need the brush of Caravaggio to depict
the awful scene whereat least on their
lawyers accountthe sons of Bernard
Madoff confronted the errant paterfamilias, who informed his
offspring that the cupboard was bare, the investors had been
duped and all these years hed been running a giant Ponzi
scheme. But this time, reversing Caravaggios terrifying image,
it was the old man who was bowed over the sacrificial rock and
the sons with knives raised to dispatch their white-haired progenitor, turning him in to the FBI. Of course, there have been
unkind souls eager to suggest that the three men had been working cheek by jowl for twenty years and that Bernie and his boys
were in cahoots on the triage as an exercise in damage limitation.
To such cynics I say, Pshaw!
On the other hand, I lend a more receptive ear to those who
say that at least some of Madoff Sr.s clients were not
so nave as to believe he had a virtuous investment
model that permitted him to report 1012 percent
annual returns on capital invested, through boom
and bust. They thought Madoff indeed had a secret
model, but one coming in the distinctly unvirtuous
form of insider information.
The most gullible marks are those who preen
themselves as being privileged accomplices in a profitable conspiracy where they have no personal exposure
to legal sanctions. Madoffs prosperous victims fatally miscalculated the dimension of the swindle. As instruction on how to get
through life in one piece, Madoffgate is proof of the old rule: the
more elegant the tailoring, the more handsomely silvered the
distinguished locks, the more innocently rubicund the visage,
the more likely the hand covertly fishing for ones wallet.
On the larger canvas, what exactly separates Madoffs operation from those of the banks rewarded for their shady follies by
a $700 billion bailout? Just like Madoff, the banks finally had to
admit that all their public financial statements were false, that
the supposed assets were worthless. Unlike Madoff, who looted
his clients of a mere $50 billion, they were too big to fail.
The operating assumption of the Ponzi scheme is that the
tide will always rise, that old investors can be repaid by the
infusions ponied up by the fresh recruits. For the past twenty
years the entire American economy has becometo quote again
Bernies succinct rsum of his businessa giant Ponzi scheme,
bloating out like the metastasizing planet described by Stanislaw
Lem in his strange science fiction novel Solaris.
Uncle Sam is the biggest Ponzi operator of all. Bernie had
to constantly replenish his fund with new deposits. So does
Uncle Sam, wheedling more money out of the Chinese, the
Indians, the Japanese and poor Third World nations forced to
pony up at the point of a gun. But in the end Uncle Sam has
one huge asset denied Madoff, who seems to have stopped
short of the straightforward forgery allegedly practiced by
Marc Dreier, the Manhattan lawyer arrested in Canada for

trying to sell nonexistent bonds to the tune of $380 million.

Uncle Sam has the printing press to run off the necessary dollars. Hes certainly going to need lots of fresh new bills. You
can set your clock now for the alarms scheduled to go off all
the way through Obama-time: credit card debt, commercial
real estate implosion, option-ARM financing.
Maybe Madoff, trolling for suckers in the Palm Beach Country Club and the Jewish charitable foundations, will become
the sacrificial symbol of Wall Street thievery, sent off to the
penitentiary in lieu of the real big-timers. I guess the silver lining
is that anti-Semitic grumbles about the Jews taking the country
to the cleaners can be trumped by pointing out that many of
Madoffs victims are Jewish. I must add that Madoffs looting
of the bequest giving Elie Wiesels Ethics Essay Prize has come
as a ray of warmth amid the winter darkness, a conclusive
demonstration of the existence of one God at least.
In tandem with Madoffs symbolic role, Rod
Blagojevich is carrying the can for the way politicians
get elected in America. If his was felonious conduct,
shouldnt 98 percent of all elected officials in this
country be behind bars? The American political
system is fueled by campaign contributions and corresponding quid pro quos. Politicians are elected to
deliver services. They need money to get elected. The
people who need services give it to them. Thats the
way the system works.
The Washington Post congratulates Obama for steering clear
of the slime of Chicago politics, but what actually happened is
that Obama moved to richer pastures. Not for him Tony Rezkos
dingy billfold but the dignity of anticipatory bri uh, campaign
contributions from the Pritzkers, the Crown family, the big
ethanol interests in the Midwest, the nuclear industry and Wall
Street financiers, the biggest of big-time money, now gratefully
acknowledged in the form of Obamas cabinet appointments.
Obama raised more money than any presidential candidate in
American history, with nary a squeak from the liberals about his
de facto destruction of campaign finance reform.
Amid the hubbub over the arrest of Blago, the New York Times
ran a piece on December 14 by Eric Lipton and Raymond Hernandez about Senator Charles Schumers version of pay-to-play.
Unlike Blago, Schumer moved from talk to action. Amid the
bailout negotiations he went to a Democratic Party fundraiser in
New York and addressed some twenty of the heaviest Wall Street
hitters. He offered some reassurance, wrote the Times reporters. The businessmen could count on the Democrats to help
steer the nation through the financial turmoil. The message
clearly resonated. The next week, executives at firms represented
at the breakfast sent in more than $135,000 in campaign donations. Of course, Madoff sent Schumer individual campaign
contributions down the years, recycling some of his clients
money for the worthy purpose of choking off any untoward
regulatory zeal on the part of New Yorks senior senator. All legal
and not even a four-letter word.