01/18/2009 05:12 am ET | Updated Nov 17, 2011

The Psychology Behind Bernie Madoff

Q: I don't understand the Bernie Madoff situation? I know it has been written about and discussed, but I don't understand how a person can do such a thing. Wasn't he living amongst the people that he screwed? Wasn't he involved with charity himself? Why would he threaten so many other charities? It really makes me scared to trust anyone or anything that one believes is legitimate. Are we all now going to go through a period of mistrust?

A: If I only knew the answer to that question. Wouldn't life be so much easier if we knew what the future held? Wouldn't it be better if no one could fool us and we could see through all deceptions? But because we are all unique individuals we will respond differently to a given situation. There is no consistent theory of how to read another person. Psychology has been called a soft science for precisely that reason. There is no solid chemical reaction or mathematical formula that predicts a person's future. It is mostly the therapist's ability to listen and have a gut feeling about the issues that are being presented by the patient's. Only then can a therapist determine goals for the patient's future.

At the same time, psychology likes to label people and their problems. So, we have been hearing a lot about Bernie Madoff being a sociopath. In many ways I agree with that. As you said, he certainly was able to exist within worlds where he was lying to everyone. A sociopath feels no real love toward others. They feel power over others precisely because they are capable of lying without any remorse or second thoughts. Many sociopaths are also quite intelligent and quite charming. So they, or any rogue, can convince people to trustingly hand over their life savings, which is what Bernie Madoff did. In some respects, then, the sociopath depends on the need of their victim to get whatever it is the sociopath is promising. In this case, the victims were all hoping for a sure bet and for membership in an exclusive investment club. And, the last couple of years have been filled with high flying returns that bring out, as market psychologists will tell you, all of the market's tendencies toward greed and a lack of aversion to high risk situations.

But, at the same time, and something that is very peculiar, Madoff shows some kind of responsibility and guilt toward his family. I, for one, am not certain that his sons knew nothing of what was happening. They may not have been personally involved, but they must have realized in certain situations that they did not know the full story. And yet, they turned their father in. Doesn't it actually sound like he told them that he will take the full brunt of the punishment, and that they should portray their innocence by showing shock and dismay? If that's the case, Madoff was not completely detached from all people. Amazing!!! Perhaps he sees his children as an extension of himself - a need to continue his legacy in some way, and not a sign that he is being protective. In other words, it's not about them. It's about him.

My conclusion is that Madoff certainly had sociopathic tendencies that bloomed in the proper environment. That environment is us -you and me. As has happened many times throughout history, the culture needed a lift, a sense of elation at the possibility that lots of money could come real fast - not a slow and steady process, but through luck or connections or financial nimbleness. This explains the Tulip Bubble of yore as well as the Enron debacle of just yesterday and, even, the thrill some people feel at Caroline Kennedy going from Upper East Side housewife to, possibly, New York senator in a flash.

The years since 9/11 have certainly been tough and unpredictable. We live with so much uncertainty. Madoff personified certainty. He gave a lot of people, charities, and bankers the answers they needed. But it appears Madoff had already been a successful investment manager. Why would he threaten all that he had already accomplished for bigger rewards? Maybe, for precisely that reason - bigger rewards. But the rewards were not money, or not just money. More people found him brilliant, more people depended on him as a wise man and more people wanted to be around him. That is what he needed.

At the same time, his clients were getting what they needed. They got rewards and security. They sought what you once did--security, predictability, certainty. For that, they looked away. They ignored warning signs -those remarkable earnings -and believed in a sort of wizard. But when the curtain was pulled back, there was Bernard Madoff, a sociopath -and the till was empty.

You are right. We all need to be less trusting, a bit more cautious, and certainly a bit more respectful of simple and long-term success.