Will The Madoff Debacle Finally End The "Who Could Have Known?" Era?
See if this sounds familiar:
An ambitious and risky undertaking carried out with hubris, and featuring the weeding out of anyone who raises alarm bells, little-to-no transparency, an oversight system in which no central authority is accountable, and the deliberate manufacturing of ambiguity and complexity so that if -- when -- it all falls to pieces, the excuse "who could have known?" can be used....
Is it Iraq? Fannie Mae? Citigroup? Bernie Madoff?
The correct answer is: all of the above.
When you look at the elements that were crucial to the creation of each of these debacles, it's amazing how much in common they all have. And not just in how they began but in how they ended: with those responsible being amazed at what happened, because...who could have known? Well, to paraphrase James Inhofe, I'm amazed at the amazement.
In fact, when historians look for a name that sums up the Bush II years, they could do worse than calling them The "Who Could Have Known?" Era.
Each of the disasters listed above was entirely predictable. And, indeed, was predicted. But those who rang the alarm bells were aggressively ignored, which is why it's important that we not let those responsible get away with the "Who Could Have Known?" excuse.
Let's start with Iraq -- specifically the reconstruction of Iraq. This weekend the New York Times got its hands on the unpublished 513-page federal history of the reconstruction. It's not pretty. As the Times puts it: it was "an effort crippled before the invasion by Pentagon planners who were hostile to the idea of rebuilding a foreign country, and then molded into a $100 billion failure by bureaucratic turf wars, spiraling violence and ignorance of the basic elements of Iraqi society and infrastructure." As a result, almost six years and $117 billion later, many essential services are only now reaching pre-war levels.
The report quotes Colin Powell on how the Pentagon, to cover up its failures, "kept inventing numbers of Iraqi security forces [that had reached readiness] -- the number would jump 20,000 a week! 'We now have 80,000, we now have 100,000, we now have 120,000.' "
Hmm, making up numbers to realize a short-term gain, but which end up making the inevitable long-term reckoning much worse? Sounds a lot like what was happening at Citigroup at around the same time.
In late 2002, Charles Prince was put in charge of the company's corporate and investment bank. The banking giant was already knee deep in toxic paper and aggressively looking the other way.
He was so successful at averting his eyes that when, five years later, as Wall Street began to feel the initial shocks of the mortgage meltdown, he was told that the bank owned $43 billion in mortgage-related assets -- it was the first he'd heard of it. Isn't that something he should have known? Or did he prefer not knowing?
Prince had plenty of help ignoring the obvious, particularly from Robert Rubin. According to a former Citigroup executive quoted in the long New York Times analysis of Citi's downfall, despite ascending to the top of the Citi food chain, Prince "didn't know a C.D.O. from a grocery list, so he looked for someone for advice and support. That person was Rubin."
When it all came tumbling down, both Rubin and Prince portrayed themselves as helpless victims of circumstance, because...Who Could Have Known?
"I've thought a lot about that," Rubin said when asked if he made mistakes at Citigroup. "I honestly don't know. In hindsight, there are a lot of things we'd do differently. But in the context of the facts as I knew them and my role, I'm inclined to think probably not."
What he means, of course, is the facts as he chose to know them.
Prince's head is even higher in the clouds: "Anything," he said, "based on human endeavor and certainly any business that involves risk-taking, you're going to have problems from time to time."
Sounds like he's reading from the same damage control playbook as former Fannie Mae CEO Franklin Raines. According to Raines, he can't be blamed for what happened at Fannie Mae because mortgage stuff is so, well, complicated. In fact, he can't even understand his own mortgage: "I know I can't and I've tried," Raines told a House committee last week. "To this day, I don't know what it said... It's impossible for the average person to understand" mortgage terms such as negative amortization. In other words, Who Could Have Known?
Committee chair Henry Waxman wasn't buying it: "These documents make clear that Fannie Mae and Freddie Mac knew what they were doing. Their own risk managers raised warning after warning about the dangers of investing heavily in the subprime and alternative mortgage markets."
Ignoring warning after warning is an essential element of the "Who Could Have Known?" excuse, as are rewriting history and shamelessly disregarding the foresight shown by those who sounded the alarm bells.
We're seeing the same ingredients in the Madoff affair. "We have worked with Madoff for nearly 20 years," said Jeffrey Tucker, a former federal regulator and the head of an investment firm facing losses of $7.5 billion. "We had no indication that we...were the victims of such a highly sophisticated, massive fraudulent scheme." It's a sentiment echoed by Arthur Levitt, the former chairman of the Securities and Exchange Commission: "I've known [Madoff] for nearly 35 years, and I'm absolutely astonished."
Who Could Have Known?
Well, Harry Markopoulos, for one. In 1999, after researching Madoff's methods, Markopolos wrote a letter to the SEC saying, "Madoff Securities is the world's largest Ponzi Scheme." He pursued his claims with the feds for the next nine years, with little result.
Jim Vos, another investment adviser who had examined Madoff's firm, says: "There's no smoking gun, but if you added it all up you wonder why people either did not get it or chose to ignore the red flags."
The answer comes from Vos's cohort Jake Walthour Jr., who told HuffPost blogger Vicky Ward: "In a bull market no one bothers to ask how the returns are met, they just like the returns."
Hasn't the "Who Could Have Known?" excuse been exposed as a sham enough times to render it obsolete?
Apparently not. Here come the Bush Legacy Project's revisionists expecting us to believe that everyone thought Saddam had WMD -- even though many were on record saying he didn't.
In the wake of 9/11, Condi Rice assured us nobody "could have predicted" that someone "would try to use an airplane as a missile." Except, of course, the government report that in 1999 said, "Suicide bomber(s) belonging to al Qaeda's Martyrdom Battalion could crash-land an aircraft packed with high explosives (C-4 and semtex) into the Pentagon, the headquarters of the Central Intelligence Agency (CIA), or the White House."
After Katrina, the White House read from the "Who Could Have Known?" hymnal: No one could have predicted that the storm would be a Category 5, and that this could result in the levees being breached. We now know, of course, that plenty of people knew that the levees could be breached and said so before the storm hit.
Then there is Alan Greenspan, who, looking back in October of this year on the makings of the financial crisis he helped create (I mean, that just happened to come out of nowhere) delivered this "Who Could Have Known?" classic: "If all those extraordinarily capable people were unable to foresee the development of this critical problem...we have to ask ourselves: Why is that? And the answer is that we're not smart enough as people. We just cannot see events that far in advance."
The only problem is, many people did see events that far in advance.
Unlike Greenspan, I don't believe the problem is that we are "not smart enough as people." As we've seen time after time, smart enough people are all too willing to ignore facts they don't like. Or, even worse, they construct oversight systems designed to be ineffective -- and unable to provide to those in power information they don't really want to know.
Much has been made of the smartness of Obama's new team. But I'm hoping that their defining characteristic won't be their IQs but their willingness to confront reality and take responsibility for their decisions.
It's time to say goodbye to the "Who Could Have Known?" era. It's time to know things again. And to know that you know them.
HuffPost Action Alert:
For Small Business Owners: Please read Tim Berry's latest post and take this HuffPost survey about how the recession is affecting your business.
For Everyone: Check out Jesse Kornbluth's terrific post on what we can all do the week after Christmas to "jump start the Obama years" by helping those who are struggling during these hard economic times.
Follow Arianna Huffington on Twitter: www.twitter.com/ariannahuff
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Will The Madoff Debacle Finally End The "Who Could Have Known?" Era?
Sadly, I fear not...
Only when these folks start doing real jail time and having their multi-million dollar assets siezed to pay off the debts will the message get across.
From Nicholas von Hoffman at THE NATION
"With the closing down of the old-time pension system, millions of employees were forced into 401(k)s requiring knowledge of finance, bonds, stocks, weird-sounding investments and tax law. They have had to make investment decisions effecting their future with no government protection against misrepresentation, legal traps laid for them and the small print obfuscation financial institutions practice on their customers. The result is the heart-wrenching situation for millions who fear that they will be living out the last decades of their lives counting their food stamps and hunting for bargains in the used clothing bins.
"The Madoff swindle puts the spotlight on the collapse of the 401(k) retirement plan. The United States is the only advanced nation without a complete retirement system.
"For 401(k)s to have worked, a bull market or at least a flat market was necessary. It was an unreliable gamble from the git-go, an arrangement that would fall to pieces when next the market crashed.
"Madoff and the crash underline the powerlessness of the millions. As a matter of principle, the Republicans defended the unregulated lawlessness that enabled a Madoff to run his swindles. As for the Democrats, sometime in the Clinton era they sold their party to Wall Street and now they have Chuck Schumer to make sure it stays sold.
"It remains for President-elect Obama to void the deal and break his party free to help those who have nowhere else to look. "
The SEC wasn't asleep at the switch, they were in on the deal. As with the no-bid contracts in Iraq, as with FEMA and corrupt cronism that followed,as with the Oil Companies and the coziness of the FDA with the pharmicutical companies or the rip off of $8 trillion dollars by the Federal REserve Board. There's no way one individual could gotten away with this unless the watchdogs were paid off.
The SEC work inside trades
We haven't had an attack against the U.S. since 9-11 because the bush administration read the Intelligence assessment reports from then on.
The hits just keep on coming. And this time... it's international.
Who could have known??
"Siemens, one of the world’s biggest companies, last week ended up paying $1.6 billion in the largest fine for bribery in modern corporate history..
In its settlement last week with the DOJ and the SEC, Siemens pleaded guilty to violating accounting provisions of the Foreign Corrupt Practices Act, which outlaws bribery abroad..
Siemens is hardly the only corporate giant caught in prosecutors’ cross hairs. [Law] enforcement authorities around the world are bearing down on major enterprises like Daimler and Johnson & Johnson, with scores of cases now under investigation. Both companies declined comment, citing continuing investigations.
Albert J. Stanley... former chief executive of the KBR subsidiary of Halliburton, recently pleaded guilty to charges of paying bribes and skimming millions for himself. More charges are coming in that case, officials say..
The [Siemens] bribes left behind angry competitors who were shut out of contracts and local residents in poor countries who, because of rigged deals, paid too much for necessities like roads, power plants and hospitals, prosecutors said..
All told, Siemens will pay more than $2.6 billion to clear its name: $1.6B in fines and fees in Germany and the United States, and more than $1B for internal investigations and reforms."
http://www.nytimes.com/2008/12/21/business/worldbusiness/21siemens.html?8dpc
It is as though this administraton was put in place to engineer a giant fleecing America. Maddow is just one of many examples of business fraud run amok.
A hands-off structure of lax rules& business ethics, neanderthall "survival of the fittest" mentality, greed, cheating, favoring those who already have too much....we are now paying the price of the Republican approach to solving all problems - the so called "free" market. Free to whom? It will cost average people plenty.
Hey, leave Rachel out of this!
*wink*
I love commentators with common sense and a lack of blinding ideological fervor. Therefore, I have a lot of respect for Ms. Huffington. The only problem I have with a piece like this is that it does nothing to ease the anger and frustration I still experience just about every time I see or hear another pronouncement from (or about) the Bush administration. I fear that, somehow, virtually all of these greedy, self-serving bastards ("compassionate conservatives," my ass!) are going to get away with what I personally see as "rampant criminal behavior." Remember, there are sins of omission as well as sins of commission, so failing to "see" is no defense, only another lame excuse that we have collectively become willing to accept when it is offered by those who are apparently "too big to fail."
I guess using "the market" as your justification for everything provides the ultimate get-out-of-jail-free card, as well. There is no individual or organizational responsibility in this version of reality. "Hey, the market made me do it," your Honor. Accountability, it seems, applies only to the little guy these days, and that really bothers me.
We need to wake up to the real scam happening now. There was no ponzi scheme. Mr. Madoff lost the money in the stock market collapse. He is using the ponzi scheme to get his clients their money back via lawsuits, SEC wrongdoing, SIPC, etc. Everyone is pondering how one person could have pulled a 50 billion dollar ponzi scheme for so long and not get detected. The answer is there was no ponzi scheme and the scam is happening now. In the end, Mr. Madoff will not go to jail, the SEC and Cox will take the fall, and his friends, the investors, will recover losses from the stock market crash and not a one person 50 billion dollar ponzi scheme lasting many years.
Huh?
He did NOT lose the money in the stock market collapse.
THERE WERE. NO. TRADES.
Let me repeat that.
Madoff Securities NEVER MADE the trades that they showed on their investor statements.
He simply took investors' money, paid out a bit as "earning" to the people on top, and pocketed the rest. That is a Ponzi scheme, by definition.
As usual Arianna hit the nail on the head. Unfortunately the Madoff affair won't end the "me-no-know-nothing" era. Obama's economic team, literally to a person, preached, practiced and immensely benefited from the Reaganomics=Rubinomics=neo-liberal=voodoo economics era of unbridled free trade, privatization, deregulation and spend-whether-you-can-afford-to-or-not policies. This group helped create the greatest transfer of wealth from the middle class and the poor to the wealthy in the history of the Planet and finally caused this calamity the middle class and poor are facing by, among other things, pushing to remove the regulations from the last depression so they could personally enrich themselves. Where they couldn't do that, they influenced the regulators to buy into neo-liberal economics and look the other way.
Rather than look at other economic models (i.e. social democracy), Obama has ignored the lessons of the calamity and selected economic advisors who can't break from voodoo economics because it made them, and those whom they represent, fabulously wealthy. Obama is part of the group-think that espouses this and that explains his "continue-right-over-the-cliff" economic appointments, not one of whom differ on the horribly failed group-think of neo-liberal=Reaganomics=Rubinomics=voodoo economics.
The middle class and the poor are going to suffer horribly if Obama doesn't change that economic team massively.
Or "The Emperors With No Clothes" decade.
That great sage, Woody Allen, was right: investment usually means, " we invest your money until it's all gone". Period.
While I have no idea why the SEC did not investigate the allegations brought to them by Harry Markopoulos, I am certain he was not alone in his concerns. More likely other people knew of this fraud and were too busy profiting from it to consider the enviable fallout. Personally I doubt much can be done to stop this type of behavior in our society so long as we all continue to worship the rich and famous. We seem to be unable to think for ourselves and question the motives and actions of others before emulating them. I do have hope that we will reach a turning point and begin to value knowledge as much as or more than wealth, power and education. However, I am frequently accused of naivete.
It will be interesting times when society's overall faith, in the institutions and industries that have shaped us, is collectively shattered -- when all the ramifications are obvious and we look back with unadverted eyes and say, "we should have known".
I wrote elsewhere that it would be so helpufl if we could decode the psychology of this Mad man as well as millions of other takers. I am a giver and I get screwed all the time. It's about time that I learned what makes anyone want was does not belong to them. Is it this bad elswhere? I know there are poor countries, I've lived in them, where people share and the theives are murdered, lower class or middle class. It's what I'm focused on now. When did having money become so totally attractive to a majority of Americans. I've been poor and was rich enough before this housing/finance nightmare. But I never cared about money for THINGS or MYSELF and I'm no saint. It's psychology. I was born not caring about money but about justice. And so are millions of others. Those who cheat steal and worship mammon are empy in ways I cannot imagine. Thank god Obama is not that way. But think of the Clintons. They weren't about money until they were all about money. I DON'T GET IT. HELP!
Let's also remember that in Madoff's case, there WERE no complicated mortgages or intricate financial instruments whose ramifications regulators might try to claim they just didn't understand.
Madoff never MADE any deals.
He simply took in money and pocketed it.
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