Anatomy of a Con Artist: How Madoff Played the Trust Equation

The Trust Equation describes the components of trustworthiness. The equation is:

T = (Credibility + Reliability + Intimacy) / Self-orientation

Of course, any such recipe worth its salt will also serve as a template for reverse engineering--a "how-to" manual for a con man. Measuring Bernie Madoff by the trust equation shows just what an effective job he did at mimicking genuine trust.

So let's do the numbers:

Credibility: Chairman of the Board of NASDAQ, for starters. Not to mention a Who's Who client roster. But an especially nice touch: not just any old lamb could buy in--you had to be approved by the wolf. Exclusivity adds cache and credibility. 9 out of 10. Better than Alan Greenspan (that used to mean a lot).

Reliability: Arguably Madoff's greatest contribution to the con: don't go for the jackpot, the Big Win. Become known for steadily hitting .335 in a league of .285 hitters. Always just over the average means always just under the radar. Another 9 out of 10.

Intimacy: Courtesy of spoonfeedin, he was described as a gentleman, gregarious, generous, personable, charming, and so forth. Like a mass murderer, he appears to have been 'the last person' one would have suspected. Give him an 8 out of 10.

Self-orientation: Who would suspect the motives of a philanthropist, a giver to religious causes, a man generous with his own (we thought) money? Not me, not you, that's who. An apparent low score (remember, low self-orientation is good); give him maybe a 2.

That's a Trust Quotient score of (9 plus 9 plus 8) / 2, or a spectacular 13 out of a possible 15. (If you don't think that's spectacular, try it yourself: take your own Trust Quotient.

There is, unfortunately, no such thing as trust without risk; and Madoff was an awfully talented con man.

Still, he couldn't have done it without his pigeons.

-- A great many people may have suspected him, but felt glad to be in on the "fix." No sympathy for them.

-- I am astonished to hear that Fairfield Partners may sue PricewaterhouseCoopers--not Madoff's accounting firm, but their own accountancy. Zero sympathy for that Madoffian level of chutzpah.

-- Then there's all the relatively innocent folks out there who thought they'd found something almost too good to be true. They learned the distance between "almost" and "definitely" is dangerously thin.

Follow Charles H. Green on Twitter: www.twitter.com/charleshgreen

Comments

[Olderandwiser55]

Plenty of red flags there that money managers and financial planners chose to ignore. Every one of them should also be in jail for failing to perform due diligence on behalf of their clients. They chose to take the commission in exchange for doing absolutely nothing.

[Rule Of Law]

All I read was, "Anatomy of a Con Artist: " and just assumed this article would be about Goldman Sachs and the order of magnitude of billions They've stolen directly from the US Treasury.

[marijam]

You have to read this, to believe it. Be sure to read the comments as well.

Investors Complicit in Madoff's Ponzi Scheme - Len Fisher, Washington Post
http://www.washingtonpost.com/wp-dyn/content/article/2008/12/19/AR2008121902977.html?hpid=opinionsbox1

[schatsie]

How is this one bit different than the SAVINGS and Loan fiasco? Too good to be true and it was and us working class slobs footed the damn bill then....

[NYCPub]

As you point out, these folks believed they were getting something that others were not. You can be guaranteed that they had heard all the rumblings about this 'too good to be true' but they didn't care as long as they got their 12% I dare say that the beneficiaries of this little scheme, until recently, didnt really care where the money came from-- whether he was making it on the backs of child labor or stealing it. The bottom line was the bottom line, and all the alarm bells in the world didn't mean a thing as long as that little piece of paper with the plus signs kept showing up quarterly.