A movie about Bernie Madoff should be made if it will help Americans see that covetousness for undeserved gain keeps us from setting up an honorable and just architecture for our financial markets. The movie needs to focus on more than the Madoff family scandal. It needs to evaluate the scandal of the American financial mind, and do so in quite the same fashion that the Christian scholar Mark Noll evaluated “The Scandal of the Evangelical Mind” in his 1995 book. In both cases the scandal is about people who are inappropriately content with unconstructive norms, thereby hazarding much good.
We will learn a good deal about the state of the public mind as the media monitors public reaction to the unfolding Madoff scandal, especially as the work of regulatory entities and courts becomes manifest. In the meantime, the public can console itself with the idea that the American stock market depends on the best minds money can buy, a cool $661,490 being spent on average in 2007 on salaries and bonuses for 30,500 employees at Goldman Sachs (Bloomberg.com, Dec. 18, 2007). Could it be, as Andy Kessler claims, that Wall Street is just a big compensation scheme? (See “Please,Sir, I want some more.” Nov. 27, 2005, Duff McDonald.)
Recently I asked 80 public university students enrolled in an introductory American government class if anyone could give me a bare bones version of the Madoff Ponzi story. In spite of my friendly urging no one signed on. I then provided a simplified version of the affair. Student reaction was largely uncomprehending — something I’ve come to expect from students poorly educated in high school as well as in the home. Experiences like this bode poorly for the prospect that justice will be served in the Madoff affair and other Wall Street debacles.
An ill wind blows as lawyers for some of Madoff’s victims prepare to pressure and manipulate, if possible, the Securities Investor Protection Corporation (SIPC) to pay for losses that were triggered, in effect, by equity price declines. Millions of Americans have lost 25-50% of the value of their retirement accounts. Who do they sue? Do Madoff’s investors deserve special treatment because they concentrated assets in gambit where risk and reward were not matched — a illogical prospect they chose to grab. What chutzpah this would be! (The meaning of chutzpah is illustrated by the traditional story where a young man slyly kills his parents to get his inheritance early, gets caught, then claims with chutzpah — aggressive insistence and brazen self-interest — that he deserves mercy from the court because he is now an orphan.)
In the Madoff case lawyers will soon appear brimming with chutzpah as they claim a right to SIPC coverage for their clients based upon the amount of money in the accounts as massively inflated by the Ponzi scheme itself. The SIPC website says this: Typically, when SIPC asks a court to put a troubled brokerage firm in liquidation, the financial worth of a customer’s account is calculated as of the “filing date.” Under the assumption that monetary growth in an account reflects deserved gains in markets operated with propriety, this makes sense. But in the case where the size of investors’ accounts reflects impossible to duplicate massively inflated Ponzi game results (demonstrated by the whistleblower Harry Markopolos) any investor restoration would be more justly calculated on the basis of out-of-pocket investment. (See “Off with their Heads,” by Paul Hollrah, Dec. 22, 2008, NewMediaJournal.us.)
If the SIPC covers the losses of Madoff’s victims up to $500,000, and uses as a basis the value of the accounts as of the day the Madoff scandal was made public, Madoff will get his revenge. Although a consolation prize, SIPC coverage would help Madoff make good, in part, on his scheme to create counterfeit values in paper assets that can be converted into hard currency for his clientele. In other words, Madoff sought to be a benefactor to a narrow segment of the population, exploiting the financial architecture to outrageously enrich a chosen few.
When the stock market plunged in 2008 it put Bernie Madoff’s back to the wall. By labeling his entire operation a Ponzi scheme and having his sons turn him in for the plot, he helped shield his sons while increasing the prospect of obtaining a partial recovery for his clients. Slick operators who choose the terms of their surrender voluntarily don’t do so carelessly. Taxpayers are at risk of picking up the tab for the Madoff fraternity bailout since the SIPC has insufficient funds for an event of this magnitude. Faulty precedence already exists with the government bailout of other Wall Street financial fraternities that were invested into quasi-Ponzi schemes, especially Goldman Sachs and AIG. (See “Goldman Sachs takes $12B bailout, hands out $14B bonuses,” Oct. 30, 2008.)
Millions of Mom and Pop investors in America will get nothing for their injuries after participating unwittingly in the red, white and blue national Ponzi scheme that the U.S. Congress has validated by supplying enormous tax and revenue incentives. Perhaps the U.S. Congress just doesn’t understand that other capital market architectures are possible. If so, the people’s representatives mirror widespread ignorance. Rest assured, Wall Street’s gurus are not going to take the initiative to educate legislators on architecture that would serve the public interest. According to MoneyCentral’s Jon Markham, they’re well-pleased with a market architecture that allows market pricing to forecast the economy only to the degree that the vast majority is wrong (“What market’s smart consensus’ sees ahead,” Jan. 08, 2009). It is necessary that the vast majority be exploited in this game rigged on behalf of the informationally advantaged, the leverage (when it works) magnifying rewards for the select few.
As argued by one MarketWatch commentator, Robert Powell, the alleged Ponzi scam masterminded by Madoff exposed the need to solve the financial literacy problem. Powell looks to Craig Israelsen for the idea that popular teen idols should teach personal finance concepts to young people on YouTube. Another of Powell’s experts, Nevin Adams, believes that financial education should be embedded in the elementary school curriculum. These suggestions are couched in arguments that as better regulation comes, Americans need to send more retirement savings to Wall Street. (See “Hard work ahead on retirement policies,” Jan. 7, 2009, Robert Powell.)
Powell’s suggestions are a sign that elites believe the general public to be credulous and exploitable. Whenever financial elites fail their fiduciary trust, a call comes forth to strengthen the finance capitalism model so as to help its advocates penetrate more deeply into society. (This is called “market reform.”) Imagine, children in the public schools being propagandized into thinking that the Wall Street model of capitalism is our secularized public religion. How does this differ from Communist propaganda?
There is a whole class of people in America who are accustomed to making their living by capitalizing on whatever the vast majority set aside for retirement. This is a duplicitous game. People on Wall Street do not deserve their high remuneration. Unreasonable compensation for these people just tempts them to use their stations to plunder the common good. Americans must reject the notion that unjust gain can be part of a sustainable ethos. Yes, it is time for a movie on Madoff, especially if that movie helps us understand what it is in our culture that has brought so much indifference toward the immorality and dangers of unjust gain.