Mad about Madoff: the Lessons to Learn

It's not just rich people (read "greedy people" if you want, or those Jesus thought had particular difficulties entering heaven) who got hurt by Bernie Madoff's Ponzi scheme. The estimated $50 billion losses have also devastated many good nonprofits and their beneficiaries: hospitals, daycares, synagogues, and two of the nonprofits I respect the most: the Innocence Project, and Physicians for Human Rights (PHR). The latter lost 29% of their funding for their brilliant campaign to expose torture by our government. The irony there is that lack of accountability by the Bush government in one area -- the financial system (they neither required adequate accountability of financial institutions nor were held accountable by Congress for their failure to do so) -- has led to major loss of funding for the campaign most likely to make accountability of any kind stick: many people think that the best chance of subjecting Bush and co. to the rule of law will come through prosecuting them for torture and war crimes. As PHR writes, "our June 2008 report on US torture, Broken Laws, Broken Lives: Medical Evidence of US Torture and Its Impact, was a significant contributor to the Senate Armed Services Committee's December 11 report placing responsibility for torture policy on top US officials. This work sets the stage for the next Administration and Congress to investigate and repudiate past torture, and restore our county's standing as a human rights leader."

So one lesson for all those nonprofits who are mad about Madoff is that our own good schemes cannot survive criminality and unaccountability in the financial system: we can't just work on our own good cause, we have to promote accountable government. If the financial system doesn't work we all go down.

But is that all? Accountability? What about the actual ethics and purposes underlying the financial system? On this deeper level I am hearing two viewpoints: 1) capitalism works if infused with decent ethics and policed right and 2) capitalism doesn't and can't work in the long run.

The first is well put by Tom Friedman in his 12/17/08 New York Times column: "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." But in his next sentence he embraces the beast: "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 second viewpoint, brilliantly argued by David Korten in the current Tikkun, is that the animal spirits themselves need to be tamed by ecological understanding and good sense. Korten argues that endless financial growth will inevitably lead to ecological devastation, and in various ways already correlates negatively with growth of human happiness and social welfare. The profit motive itself has to be replaced with the common-good motive, and "common" includes us all, the whole biosphere. Nor is it enough for individuals to be unselfish within a system with selfish purposes (for example, in which companies exist to deliver profit to shareholders): the whole system has to be redesigned (so companies exist for social purposes).

At this point, it wouldn't be bad to have a cleaned up, Ponzi-free, derivative-free capitalism, in which ethically aware people use the for-profit system to pursue socially valuable goals like renewable energy. But if as many people as possible can start or convert businesses to social businesses, as promoted by Mohammed Yunus in Creating a World Without Poverty, or by the Network of Spiritual Progressives' Covenant with America, and can press for legal changes and government funds to support such businesses, then we will get a jump start on the future.

If that's what getting mad at Madoff does for you, then good may yet come of his madness, and of our system's for letting it flourish.

Dave Belden, D. Phil, is Managing Editor of Tikkun magazine.

Comments

[PacificGatePost]

Dave,

OVERSIGHT IS IMPOSSIBLE

Corruption is well seated at all levels of the banking establishment.

Madoff is just not very unique in his methods of cash collection.
-
http://pacificgatepost.blogspot.com/2008/12/is-madoff-really-anomaly.html
-

[entropygal]

I have a suggestion for Mr. Madoff. Return all of the $50 billion, each and every penny, period or give it to the auto industry to help them out.

[john456]

This scheme did not occur in the last year; it has been going for at least thirty years. I believe that many of the participants believed that something "on the shady side", like insider trading, was occurring but thought that they were with the in crowd. The essence of most all scams is that the participants are joining to "skirt" the law. I realize there are some who adopt a "don't ask, don't tell" attitude, but I believe a large portion of the Madoff Fund investors were winking at each other as they discussed their "preceived "gains".

[twofish]

WC Fields used to say, "You can't cheat an honest man." I think you can, but it's so much easier if he goes along with the plan.

[JBS]

You can rob an honest man, but you can't cheat him.

At the bottom, every con is based on the premise that you are going to enrich yourself at someone else's expense. You have to be willing to cheat to be cheated.

[The Hedonistic Pleasureseeker]

Fractional reserve banking IS a Ponzi scheme, the only legal one in existence so far as I can tell. The principles behind central banking schemes are by definition unsustainable. It's time to return to commodity currencies and leave the funny fiat monies behind.

[CharlieMarlowe]

I have a degree in Ethics. Would a company, law firm or financial institution hire me on the strength of that? Not likely!. Ethics is paid lip service but is not valued, feared or respected. Greed is. The fact that the greedy are now feeling the effects of their pathology is a good thing, but is unlikely to herald a new, ethical age.

[entropygal]

Amen.

Ethics is only useful to help companies maintain a reputation. It is not the pursuit of ethics, but how to hide the shady dealings. Do not get caught is the lesson most want to learn, not do the right thing.

It hearkens back to the recent survey of young people who responded that they lie and cheat in school and life; everyone does it. How pervasive is this?

[DiogenesOfAlaska]

How about a prudence bailout? Can we agree on that?

And to make sure the Evangelicals chime in, recall that prudence is a major classical virtue.
Yeah, I know, virtues aren't enough for Evangelicals. And prudence isn't enough for greedy folks. And bailouts aren't enough for market fundamentalists. And cooperation isn't enough for bankcruptcy lawyers. And Jesus isn't enough for peaceniks (he's supposed to reappear with a sword, isn't he?)

ok. I'll think again and tell you about the results later. But I'm afraid one thing is certain already: we won't get rid of derivatives. It's like trying to get rid of the future and the fact that we don't know much about it but must.