Swans Commentary » swans.com December 29, 2008 - January 1, 2009  



Bernie Madoff And The Establishment


by Gilles d'Aymery





(Swans - December 29, 2008 - January 1, 2009)  Much of the reporting on the financial swindle perpetrated by Bernard Madoff -- an alleged $50 billion worldwide Ponzi scheme -- has concentrated on an ethnocentric subset of the tale, highlighting the Jewish character of the scandal, the suffering and sense of betrayal felt within Jewish circles in the U.S., but it has left out the more important part of the actual story: that the Establishment was cannibalizing itself; that an "establishmentarian" had pilfered the very Establishment of which he was a member in not just good, but perfect standing; and that the Establishment itself was running scared to death trying to figure out whether the Madoff deception was a fluke, an anomaly within the well-oiled machine of wealth creation, or, more ominously and worrisomely, the tip of an iceberg that is threatening the entire wealth structure of the few -- which it undoubtedly does.

Wealthy people are quite familiar, intuitively or not, with the "accumulation [of wealth] by dispossession," a concept developed by David Harvey, a professor of anthropology at City University of New York. In short, and to use a grasping metaphor, a huge bilking vacuum cleaner sucks the money from the bottom to the top of the food chain. That's how it's supposed to be in a natural, Darwinian structure of life. But then, what happens when that structure starts feeding on its own memes? This is new territory.

Thomas Friedman, the eulogist of globalization, the bard of neoliberalism and the "world is flat," the advocate of war ("Give war a chance," said he in 1999) -- any war, including Iraq and Afghanistan...and Russia and China, if need be -- suddenly wonders how much the system (which in his book translates into America and his bank account) is corrupt. He concludes his December 17, 2008, New York Times Op-Ed, "The Great Unraveling":

The Madoff affair is the cherry on top of a national breakdown in financial propriety, regulations and common sense. Which is why we don't just need a financial bailout; we need an ethical bailout. We need to re-establish the core balance between our markets, ethics and regulations. I don't want to kill the animal spirits that necessarily drive capitalism -- but I don't want to be eaten by them either.

The significant proposition here resides in the last nine words -- "I don't want to be eaten by them either" -- because Friedman does sense that even he and his ilk are not immune. The "game" is no longer about trouncing the little people, those who do not count in the salons of power; it's about the very survival of his class. If they cannibalize each other -- which they have to do since the bottom of the ladder has nothing much to give anymore -- where do they stand?

Bernard Madoff did swindle his own community -- nothing particularly spectacular in that happenstance. "Affinity fraud" is a well-known scheme within the anthropological sphere of academia. Had Madoff been a Mormon, a Baptist, a churchgoer of any sort, or a groupie, he would have behaved in the same fashion, preying on the gullibility of his flock, as Stephen Greenspan, a professor of clinical psychiatry at the University of Colorado, and one of the swindled, clearly expounds in "Fooled by Ponzi (and Madoff)" (skeptic.com, December 23, 2008). Fooling people and preying on gullibility are age-old machinations that transcend ethnicities.

Wealthy American Jews got caught in the snare. Scores of preeminent Jewish families (Spitzer, Lautenberg, Wilpon, Zuckerman, Katz, Markin, etc.) got had... They were indeed, but they were all members of the Establishment. They are fully integrated members of the American culture of greed and exploitation, successfully assimilated within the power structure.

The Madoff sting has little to do with Upper East Side New Yorkers and Palm Beach wealthy retirees, which in some insalubrious publications (or Web sites) are dubbed Jewish; it has to do with class. More "non-Jewish" outfits, starting with the Fairchild Greenwich Group, all the way to international banks, the Korea Life Insurance Association, and the Abu Dhabi Investment Authority, among many other swindled entities, dwarf the story line. Think of the victims: banks, insurers, pension funds, hedge funds, universities, not-for-profit (an oxymoron) charities, wealthy investors... even the International Olympic Committee... They all jumped on the Madoff greed train. Madoff was an equal opportunity, ecumenical fraudster.

What's really occurring? The wealthy few are at each other's throats. That's the clarion Friedman is ringing as forcefully as he can. The wealthy are under siege the moment they go after each other.

Look beyond the Madoff sideshow. Hedge funds are scrambling to avoid redeeming their investors' funds. The most aggressive, like Cerberus Capital Management -- yes the 80 percent owner of Chrysler, with Dan Quayle (former US vice president) and John Snow (former US secretary of the treasury and chairman of Cerberus) -- are locking the funds, refusing to make good on their word. Others are devising clever schemes, such as "rolling gates," "side pockets," and "liquidation funds" to delay or postpone any redemption from investors. (See "Blocking the Exits - Hedgies' newest gambit: keeping investors in," by Kaja Whitehouse, New York Post, December 26, 2008.)

Who are the investors? Ask Thomas Friedman. He is one of them. Due to their lack of transparency and the unregulated environment in which they operate, no one knows exactly the current value of these funds. There are estimates floating around of 20 to 70 percent losses for some of them, which would make the Madoff swindle a blip in comparison.

Friedman's call for "an ethical bailout" and the need "to re-establish the core balance between our markets, ethics and regulations" looks like a primal scream that asks: How many Madoffs are out there?

As the old saying goes, "you ain't seen nothin' yet."


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Swans -- ISSN: 1554-4915
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Published December 29, 2008 - January 1, 2009