News recently broke about another financial scandal, this one involving Sir Allen Stanford. He is not a superstar like Bernard Madoff, he only "made-off" with 8 billion dollars. He too had all the trappings of respectability; philanthropic affiliations, governmental connections, even knighthood - the "Sir" was bestowed on him from a place not known for its knights of the round table, the island of Antigua. Although not as impressive as "Sir Elton John" or "Sir Anthony Hopkins" — who got their knighthood from Great Britain — it still allowed Stanford to put "Sir" on his website and business cards and nobody knew the difference anyway.
After Madoff, it was a matter of time before all kinds of crooks got exposed, many who had operated without scrutiny for years. These guys weren't as smart as Madoff — it takes a unique intelligence to put together a scheme of the size and global scale he did and sustain it over so many years. He set the standard that all financial schemes will be measured against. I'm sure the others were just as ambitious but like basketball, there is only one LeBron James at a time. Fraud has become a competitive sport.
Madoff gets front page headlines and magazine covers, others get small articles on page eight of the business section. As New York Times reported on February 26, "For two decades, Paul Greenwood and Stephen Walsh looked like Wall Street wizards. Their supposed investment prowess lured hundreds of millions of dollars from public pension funds and universities and earned the two lavish trappings of success." Same drill as Madoff and Stanford, yachts, private planes, club memberships, etc.
Federal agents busted these two this past Wednesday. According to the Times, their investment fund was a $667 million dollar fraud. To add insult to the injury of getting caught, their fraud was deemed "a small scale version of the $50 billion fraud that Bernard L. Madoff is suspected of." Small scale. Small time. Petty. Doesn't even hit a billion. Madoff is accused of "masterminding a global Ponzi scheme" - here's the kick to their groin - "Mr. Greenwood and Mr. Walsh simply stole their investors' money, the authorities said." You've got to steal on a major scale to get any respect - these guys simply "stole" their investors' money. I'm not sure of the distinction. There is apparently no evidence that Madoff ever purchased any securities - sure seems like stealing. Now you've got money - now you don't - the wizards made it disappear.
The question of whether anything could have been done to prevent this arises and who better to ask than Alan Greenspan, the man who presided during this period of fierce financial competition, illusory profit and greed on Wall Street. In the "House of Cards," a CNBC documentary, Greenspan was interviewed by David Faber who asked him that question. Although known as an economist, Greenspan showed his prowess as a psychologist, "The flaws in human nature are such that we cannot change them, it doesn't work."
We should be happy that Greenspan wasn't the head of The Center for Disease Control or The Department of Transportation. We have laws and regulations because we have "flaws in human nature" so we can reasonably coexist in society. Those "flaws" produced slavery, kept women from voting, pursued unjust wars, sold dangerous pharmaceuticals, made us dependent on foreign oil, sold billions of dollars of toxic debt, and well, you get the picture.
"There is no doubt that somewhere in the future we're going to have this conversation again. It will not be for quite a period of time. But it will occur..." said Greenspan, showing how optimistic he is about his own longevity, if not the economy.
Speaking of flawed human nature, I almost felt bad for these two financial "wizards"; quoting the Times, "Mr. Greenwood and Mr. Walsh never developed the sort of wide following that Mr. Madoff had enjoyed." I guess Bernard was just a more popular guy, until his popularity turned into notoriety.
Almost as footnote to the article, another financial manager, James Nicholson, may have cost his investors as much as $100 million since 2004. Mark Bloom, founder of The North Hills Fund, was arrested for stealing $5.2 million from his own investment company. They were not important enough to get their own article. The competition is too tough.
Thank you for finally stating the obvious -- the US economy, as it is, today, is based on nothing but ripoff schemes and one consumer scam after another -- it seems that what we "manufacture" best is ways to conduct fraudulent businesses -- and, the more money made off them, the better.
Take the insurance industry, for example -- totally based on gambling and greed -- and addicted to raking in obscene profits -- which generates lots and lots of low-paying jobs, pushing papers back-and-forth between well-decorated office buildings staffed with armies of clerks and overpaid/underworked execs who watch the company's bottom line (and little else) . . . and, to what end? What does the insurance industry do -- really -- ???? It doesn't seem to pay out claims submitted -- insurance companies usually just fold up their tents in the middle of the night, when the times get too ruff for them (like they did in FL). Other than keeping the papermills and landfills busy, I don't see what value they provide to society.
The question that no one is asking, however, is, what are they teaching in the nation's business schools? It's certainly not good business ethics -- otherwise, we probably wouldn't be in this mess in the first place.
Secondly, the fraud and war profiteering in Iraq makes Bernie Boy look like a piker. How much of the Federal Treasury did Halliburton, et al. make off with? It would be nice to see an accounting of the expenditures for that monumental blunder. I’d really like to see President Obama claw some of that money back.
If we take that risk we could be very surprised how it all pans out. My suggestion:- we need to learn to co-operate--not compete. Economics and money, by virtue of their existence are competitive. Madoff and Stanford were just doing the money thing. We are one creature on one planet and unless (real quickly) we seek another way of life modality we are not going to have a planet: let alone a human species.
Great article Jeff. Hope to read more soon!
W Bush said that Wall Street "got too greedy".
Doesn't that say it all?
I just don't get where the logic is.
It's improbable as well as impossible. It is the height of recklessness and greed is at the bottom. I am sorry for the innocent investors. The old couple who were invested because a broker said this is where you put your money. The charitable funds which were invested through different funds and ulitmately madoffs. But the rich who invested because it would make them richer deserve what they got, and maybe now we can all be on a level playing field without all the rich wall streeters telling us this is good for you when it's really good only for them.
Again, I'm sorry for the innocent, but the greedy got what they deserved and they get no sympathy from a struggling working girl who's company get's no tax breaks and who can't even get a small business loan.
Me? I'd have changed my name to Willie Sutton already. ;-)