Madoff's Enablers Are A Lot Like Bob Woodward

"My conscience is clear," said Donald Rumsfeld at Cafe Milano last Thursday, as Paul Wolfowitz and Dick Cheney held court nearby. Maureen Dowd claimed that she "zigged and zagged" to avoid contact with the neocon troika. They didn't even "have the decency to leave the scene," wrote Dowd. Bob Woodward said that he was "stunned," and "speechless" at Rumsfeld's abdication of personal responsibility.

Who are Dowd and Woodward kidding? You don't go to a whorehouse hoping to find a virgin, and you don't go to a media event honoring Brit Hume expecting to hear deviance from the Bush party line.

Dowd and Woodward were joined by their peers, media types who, at least till now, coveted celebrity and insider status in Republican Washington. They included Judith Miller, George Will, Fred Barnes, Andrea Mitchell, David Ignatius, Bill O'Reilly, Geraldo Rivera, Laura Ingraham, Oliver North, Greta Van Susteren and Howard Kurtz. Gwen Ifill, Bill Plante, Rita Braver and Ted Koppel also showed up. Three anchormen - Brian Williams, Charlie Gibson, and Bob Schieffer - also stopped by to pay tribute to a guy who spent the last decade trashing the case for global warming. "Brit is universally respected by people on the right, in the middle and people who pretend they're in the middle," said Roger Ailes, in a preemptive dig at his critics.

The media types had the opportunity to mingle with Mitch McConnell, Alan Greenspan, Fred Thompson, Boyden Gray, Bob and Elizabeth Dole, and Joe Lieberman. No doubt these esteemed public servants would have echoed Rumsfeld's "My conscience is clear," comment. Not that anyone in the room - certainly not Dowd or Woodward - felt inclined to speak truth to Republican power.

The Fox News gala was part of a grander conspiracy of silence, a collective legacy project designed to whitewash everyone's role in abetting the Bush disasters of the past eight years. No one suggests that George Will was in over his head and had no idea what he was talking about when he advocated the Iraq invasion. No one reminds Brit Hume, Judy Miller, Fred Barnes, Andrea Mitchell, or Bob Woodward, all of whom maligned Joe and Valerie Wilson, that they were promoting Dick Cheney's dirty work.

Instead of zigging and zagging, Frank Rich connected the dots. In his column, published the same day as Dowd's, Rich pointed out that there are countless Washington analogs to the Madoff scandal. The common thread running through all these scandals is that the due diligence process, or fact checking, was a sham. Simple due diligence would have discerned that Madoff ran a Ponzi scheme, that the WMD intelligence was bogus, that NINA mortgages were extended to unqualified borrowers, and that the Iraq surge required an expansion of the back-door draft.

Put another way, the scandals always involve two conspiracies: a conspiracy to defraud and a conspiracy of silence. The failure to perform due diligence is part of the conspiracy of silence. As for the Iraq war, Cheney was part of the conspiracy to defraud, Woodward was part of the conspiracy of silence. Bernie Madoff was part of the conspiracy to defraud (trust me, it was physically impossible for him to have acted alone), whereas feeder fund mogul Walter Noel was part of the conspiracy of silence.

In this respect, Bob Woodward and Walter Noel were cut from the same cloth, bigwigs who traded on their insider status to access special information kept from the public rabble, and who ignored the incriminating evidence hiding in plain sight. Noel, no doubt, was "stunned" and "speechless" at the news of Bernie Madoff's Ponzi scheme.

Here's how Woodward and Noel each engaged in a sham due diligence process.

Woodward and the Narrative of Good Faith Reliance on CIA Intelligence

Bush's reelection in 2004 relied on a false narrative, marketed and promoted by Bob Woodward, that the decision to invade Iraq was made in good faith, in reliance on George Tenet's assessment that, "It's a slam dunk." The Tenet anecdote was the centerpiece of the April 2004 marketing campaign for Plan of Attack, Woodward's blockbuster bestseller. The rollout began on 60 Minutes :

Says Woodward: "George Tenet's sitting on the couch, stands up, and says," 'Don't worry, it's a slam dunk case.'" And the president challenges him again and Tenet says," 'The case, it's a slam dunk.' ...I asked the president about this and he said it was very important to have the CIA director -" 'Slam-dunk is as I interpreted is a sure thing, guaranteed. No possibility it won't go through the hoop.' Others present, Cheney, very impressed."

What did Woodward think of Tenet's statement? "It's a mistake," he says. "Now the significance of that mistake - that was the key rationale for war."

It was just two weeks later when the president decided to go to war.

Tenet's statement "was the key rationale for war." Hmm. Given that Bush and Cheney each offered up a self-serving version of events, an honest journalist would have confirmed the quote with the man who made it. Woodward did not, and later Tenet claimed that his remarks were taken out of context. Woodward also skirted the normal rules for multiple sourcing; he submitted written questions to Cheney ahead of time, so that all the interview subjects could coordinate their talking points. Woodward's due diligence was a sham.

As for the decision to invade Iraq, Tenet's remark was virtually irrelevant, given that the inspectors, led by Hans Blix and Mohamed ElBaradei, had publicly eviscerated the CIA case in early 2003, while the Administration offered no substantive response. Woodward, along with Bush, overlooked this inconvenient truth, and in that respect Woodward participated in the conspiracy of silence.

Making a further mockery of the idea of independent analysis, Bob Woodward critiqued George Tenet's memoir in The Washington Post.

Noel, the Absence of a Separate Custodian, and the Mom and Pop Auditor

Walter Noel is not as famous as Bob Woodward, at least outside of the more exalted social circles of Greenwich, Connecticut, where schadenfreude is more popular than it is in Washington. Walter and Monica Noel, along with their five beautiful daughters and the sons-in-law who worked in Walter's firm, were devoted climbers of the heights of Greenwich society. Their downfall of the was Topic A of almost every holiday party in December, according to well-connected friends. Their appearance at the Christmas dance at the Round Hill Club was met with ridicule in the press, and their foibles are tracked regularly, Perez Hilton style, on The Business Sheet.

The Noels earned hundreds of millions of dollars from their feeder funds at the Fairfield Greenwich Group, which skimmed fees off the top of the Madoff's phantom profits. Jane Bryant Quinn put it best:

"[F]eeder funds are a racket. They collect the money, extract a large fee, and pass it on to another manager who does the work. By the time both levels of fees are paid, your principal probably will decline, even if the fund itself makes gains. The general partners in feeder funds have only one job: to be rich, mingle with the rich, and make the rich want to surrender their money, at any price. Not bad work, if you can get it."

Putting aside the Noels' understanding of Madoff's purported investment strategy, which others found "statistically impossible to replicate," there were two due diligence red flags that, when considered together, make it impossible to believe that Noel was acting in good faith.

These red flags pointed to the essential and necessary elements of Madoff's scam. Remember, in a scam like this, every check, every wire transfer, issued over the years is an act of bank fraud. Investors expected that their money was pooled, invested, and proportionately allocated and distributed over the years. Investors' proportionate shares of income and principal would be tracked precisely, for generating 1099 Forms issued each year to individuals and the IRS. In reality, the cash came in and was siphoned off to wherever, and investors received distributions so long as the new cash coming in exceeded the total cash going out.

The cash and investments in Madoff's funds were not kept by a separate custodian. As a red flag, that's huge, because it's so obviously reckless. In a fund where securities or investment contracts are traded, especially over the counter, you want to be absolutely sure that you have good and unencumbered title to the securities before you let cash out the door. And if you are in the business of trading options, a simple recordkeeping error could be disastrous, since options expire abruptly.

By the same token, a mom-and-pop accounting firm like Friehling & Horowitz, Madoff's "auditor," is simply incapable of adequately auditing the risk controls of a company performing custodial services for a $17 billion investment fund that actively trades options. Period. Again, that's a huge red flag. It's like using Joe the Plumber to assess the safety of New York's water supply.

As a rule, actual due diligence is performed by junior people who get pushed around by people further up the food chain. So when the disaster becomes apparent, the higher ups can deflect the blame on to others. The rich, powerful and famous can act "stunned," and "speechless." Or as Bob Woodward might say, "My conscience is clear."

Comments

[uhohimprogressive]

For more on Bob Woodward and why he has been "easy" on Bush pick up a copy of Russ Bakers' "Family of Secrets".

[MyThought]

Sounds like a jealous journalist here - not invited?

[realpolitic]

The enabling of Bush by the press during the Bush years is tragic for our democracy. It shows when a strongman comes along who uses arrogance and bluster to intimidate, the press well cower. The whole Bush presidency was smoke and mirrors. There was no effort to find the truth about weapons in Iraq, only to conceal the real findings. Bush broke laws by torturing and impairing our civil liberties and where was the cry in the press? Instead, David Gregory danced on the stage with Karl Rove. The press should all be fired and replaced by people who do not need a pat on the head by authority figures.

[continentalshelf]

Don't forget Chris Mathews, who had a semi-infatuation with Bush for whatever reason. He seems to love demagogues. He loves Obama, not because of what he stands for, but for the aura he eminates. Mathews is a blowhard.

[sixx]

One interesting way to look at Bob Woodward during the GW years, is to look at what he omitted reporting as an WH insider. While Woodward was writing about GW's management style, and 'gut decisions', the WH was wiretapping U.S. citizens, rendering, torturing, shredding, blacklisting, and disclosing CIA covert agents. Bob went so far as to attack Plame and Wilson without disclosing his relationships with those accused.

Basically, Woodward became a propagandist for the Bush administration.

[overcat]

Woodward, despite the great work Carl Bernstein and he did on Watergate, is indeed a sellout of the highest order. He's like a rocker who rocked the world in the early seventies and has churned out trite pabulum and crap ever since, resting on the laurels of what he did during his brief period of inspiration and integrity. The man won't be going away anytime soon, given how linked in he is to the establishment of other former greats and not-so-greats - they tend to promote each other like one big mutual admiration society - but we can ignore him and do what we are doing now, which is to call him out on his lack of integrity and honor, and work to expose him for what he really is.

[Pearlswan]

Woodward was one of my Watergate heroes along with his partner, Bernstein. When his book about Bush hit the market I was relieved to know the American people would finally begin to get the truth about Bush and the Iraq war, among other things like Carl Rove, Rumsfeld, Wolfowitz, and Cheney and their self-interest only politics. I watched every interview Woodward did on his books. I was extremely disappointed with what I heard. He sounded like he was protecting Bush. It was nothing like his Watergate reporting. Then when Deep Throat was named I was disappointed in Woodward's discussions concerning Marc Feld. Woodward sounded like a sell out. I believe his Bush books got Bush re-elected in 2004 because they revealed nothing about the self-interests and the many defense, oil and pharmaceutical industry connections among WH personnel. What about all the corruption in the defense industry? Blackwater? KBR? Barely a word. Who cares how Bush was duped or how he rationalized his illegal and/or immoral actions? I care more about the people he hurt and the Constitution he is charged to defend. As a result, Woodward has lost all credibility with me. His investigative reporting is as lightweight as a Judith Miller NYT column.

Thanks for your honest and accurate post.

[JBS]

It became clear years ago that Bernstein was the driving force behind the Woodward - Bernstein collaboration on Watergate.

If Woodward had been on the story by himself, it never would have been told.

[InofTouch]

So bookreaders are what got bush relected in 2004 and not the TV. I doubt people even read his books which is sad for there are all misguided.

[melpol]

Borrowing money on the anticipation that you will be employed long enough to pay it back is a Ponzi scheme. There is no way to guarantee that you will not be fired tomorrow and leave the creditors with a loss. Madoff did the same thing when he borrowed money from his investors in hope that they will be paid back. He returned millions in profits to happy investors before he went broke. Lets not blame Madoff for doing what most borrowers do every day.

[overcat]

The big difference between the average person borrowing money with the notion that their job is secure and that they'll be able to pay it back and what Madoff did is stark and clear. Madoff essentially knew that his scheme was structurally unsound and used deceit and secrecy to perpetuate it up to the point that the lies no longer added up. The average person who takes out a loan generally does so with good faith and lays out the facts of their financial situation to the lender in order that the lender can loan with informed consent. Don't forget that when the average person defaults on a loan it represents a personal financial disaster for them, while Madoff's malfeasance created financial disasters for others. I'd venture that Madoff's only regret is that he's been caught.

What exactly is your agenda for defending this clearly dishonest man?

[Irmanator]

That is one of the worst analogies I have ever read.
Ponzi's are a system where no value is created or transferred in from anyone other than investors.
There is no relation between Ponzi schemes and the case of someone borrowing money against future EARNINGS (creating value for an employer and receiving payment) who intends to return the borrowed sum plus interest. The debtor is adding value to the system by transferring money from his/her employer to the creditor.
Also, with a loan there is usually some sort of collateral that the creditor can claim should the debtor fail to repay the loan.

[ThomH]

David--

Great piece. Thank you for this post.

Good to see the almighty Bob Woodward flattened. "Conspiracy of silence" indeed. It can be seen in all his recent books: Woodward sold his soul for "access", and to insure he did not lose it, he whitewashed all he saw and heard.

And as you reveal, so did many who were "close" to Madoff, and profited from that closeness.

"There are none so blind as those who will not see." Or so guilty.

[SallyStraight]

Something is wrong with the picture of Bernie Madoff.

Sure he's been determined not to be a flight risk by two judges, but why should he be able to be under house arrest in a luxury penthouse acquired on the backs of others he ripped off?

If he must stay out of a "physical" prison, why not require that he reside in a rat-infested tenement? After all, he is a rat, isn't he? I would hate to be one of the people he trampled and crushed reading that he gets to kick back in the lap of luxury while they struggle to survive.

Visit www.myspace.com/sally straight for more of my opinions on this an other things in the news. I'm always outspoken, try to find the humor and don't pull punches. Please, post comments and visit often. I'm alway spouting steam about something! 'Nuff said. Sally Straight --MyComments2

[theblackhand]

As an attorney who has both done due diligence and supervised due diligence, I believe that any person legal entity that invested with Madoff is guilty of at the very least gross negligence. Even companies engaged in seven figure deals, much less nine or ten figure deals are pored over by business development persons, lawyers and accountants relentlessly. Even a privately held company subject to no federal oversight that does 10 million a year in business has to use an internationally recognized accounting firm or its earnings figures will be dismissed as a sham by any potential business partner. There should be lawsuits and trials clogging up the courts worldwide for years to come. At least with Enron there was only one evil company, albeit with lots of little evildoers that enabled them, including their fancy accountants. I expect the attorney general designate Mr. Holder will be asked his opinion of jailing those involved, which is at least as important as putting the war and torture enablers of Bush & Cheney, Inc. behind bars.

[waverly]

In my small county alone there are 3 different unions that had their pensions and benefits fund wiped out by Madoff. A local fund investment manager was responsible for these investments. Shouldn't he be held accountable as well? The press reports that it was difficult and a "privilege" to get into the fund. Well, it seems to me that others beside Madoff were marketing the fund as well. Madoff could not have acted alone. There must be others who profited as well.

[GreatNews27]

The really great news is that they will never be punished. Not Bush, not Madoff, no one. Why? Because the people who dictate punishment are IN ON THE CRIMES. Most judges today are Republicans. Republicans protect their own at all costs. Bush will never be held to account. Madoff? Judges are rich people also. To see one of their 'society' friends go to jail would be 'distasteful'. Can't have that, can we. Face it folks, if you have money and friends in high places, you can pretty much comit any crime you want to these days and get off. Aint' America grand?

[shanefish]

America is one giant ponzi scheme and has been for over 20 years.

[thewho77]

GOP & Dem pundits, so-called reporters (stenographers), ALL ENABLERS OF THIS BUSH MELTDOWN

[pundit27]

very important post . . . thank you . . . .the question now it seems is what can we do to make sure that the major filters and purveyors of crucial information, be they hedge fund managers or authors, do not use their common goal -- wealth -- to create bogus high-performing investment funds or political narratives that ignore the realities in favor of furthering their ego-driven dreams . . . . we all should be wary of the continued co-option of authors, journalists, publishers, investors, regulators, legislators et al by the monied powers, be they u.s. administrations, sovereign funds, global corporations, top foundations, etc.

[cobraxus]

these people are nothing more than conscienceless crooks and scoundrels.even worse they're proud of it.