A traitor to his club

Responses to the Bernard Made-off situation by his long-time friends, colleagues, would-be clients, clients, and dupes at the Palm Beach Country Club, where Ian Urbina of the NY Times tells us that “at least a third of the 300 or so members had money invested with Mr. Madoff.”

I don’t understand this:

In cultivating an aloof mystique, Mr. Madoff had fooled those who fancied themselves the wiser.

Typically, investors needed at least $1 million to approach Mr. Madoff. Being a member of this club also helped.

But even with those prerequisites, there was little guarantee that Mr. Madoff would take the client.

Why the choosiness? Money is money. Who ever heard of an investment banker or stockbroker refusing a prospective client who had enough money to invest and wanted to invest through him? Did Madoff give his reasons for accepting some clients and rejecting others? It’s amazing how reporters will tell a fact that raises obvious questions that need to be addressed but fail to address them. I thought people became journalists because they’re curious about the world. But the characteristic feature of today’s reporters and editors is their lack or curiosity. Or perhaps they are guided by the need to provide a smooth, professional product, and asking substantive questions gets in the way of that.

The article continues:

Looking out on the stunning beauty of the country club’s driving range, wedged between the Intracoastal Waterway and the Atlantic Ocean, one club member commented that the outsiders of Mr. Madoff’s clique turned out to be the lucky ones.

“It’s funny how these things work out,” the member said, adding that he had never tried to invest with the firm because he did not like Mr. Madoff’s unwillingness to explain his methods.

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Hannon writes:

“Or perhaps they are guided by the need to provide a smooth, professional product, and asking substantive questions gets in the way of that.”

Yes. They are supposed to provide satisfying content, not leave the reader unsatisfied by asking questions that force the reader to speculate or ponder.

Jake F. writes:

You asked, “Why the choosiness? Money is money.”

It’s a marketing ploy. Marketers know that when an offer is exclusive, it’s highly valued, and when it’s open to everyone people tend to devalue it. That’s regardless of the actual value of the offer. In consumer marketing, this translates into companies making pricing decisions like the following: “We could sell this product for $10, but our high-end competitor sells their version for $20 and our low-end competitor sells their version for $12. It seems like we could sell for $10 and own the market, but in fact testing shows that people think that it must be a shoddy product if it sells for that little, so we’ll price it at $16 instead.”

In this case, Made-off needed to show that not just anybody could get in. High-end financial services companies or funds always have minimum investments, so it would seem too easy and people would be suspicious if he didn’t.

And there’s a side benefit: it allows Made-off to appear as though he’s condescending to work with you if you don’t have enough money. “I don’t normally do this, but I like you. Give me 100K and I’ll let you in.” The people who get that kind of an offer highly value it and will certainly want to get in on the deal that all of the bigwigs are getting; they’ll think things like, “If I leave that 100K where it is I’ll only get 10 percent, but with Madoff I might get 20 percent. I’m risking nine percent of my future earnings if I don’t invest.” The focus right now is on the big investors, but I wonder how many “small” (sub-million-dollar) investors were caught in his net.

Once you stop thinking of him as an investor and instead as a combination marketer and conman (no, the two aren’t synonymous:) ), his actions become pretty clear.

P.S. You might find it amusing that I’m reading your site using Blackbird. I wanted to see if there were any substantive differences, and I also like to test my online magazine against different browsers.

W. writes:

There was an interesting quote in the NYT article you cited:

“But everyone at the club saw this differently,” said Laurence Leamer, an island resident and author of a forthcoming book, “Madness Under the Royal Palms,” about the island’s elite. “Anyone can get robbed,” he said. “Madoff’s scam was so much worse [than the previous fraud by some Chinese hustlers] because he was one of their own.”

Why? Why was it “so much worse”? And what was it “much worse” than? Are they suggesting that being taken by the goyim is understandable—even expected—but being taken by a fellow Jew is truly shocking? Is it because Jews are deemed more honorable to their own that Christians are to Jews? I wonder.

Although I am a Christian, I cannot say that I would trust a Christian stock broker or investment company more than a Hindu or a Muslim or a Jew. Yet one of the primary methods of control in the Jewish community seems to be organizations like the Presidents or or the ADL, that thrive on us-against-them to nurture an ethnic solidarity and their own leadership position.

So what is it about the ethnic connection that engenders trust (or at least the letting down of one’s guard)? What is the secret handshake? Is it the fraudsters giving to race-loyal causes that is part of the confidence game? Did Madoff’s donations to Jewish causes—Zionist causes—lead his fellow Jews to lower their guard? Did his donations enable him to bestow upon himself some mantle of honesty and integrity? Was it his donations to other Jews (other causes) that led his victims to assume the same generosity and race-love would be extended to them? Is it true of other minority ethno-religious groups in America? Would it be shocking to an Italian if another Italian cheated him? Or are they so weak in solidarity, so weak in Putnam’s “social capital,” that they already mistrust their fellow Italians and thus would not be surprised?

Madoff’s is an interesting case for a host of reasons. One that particularly interests me is the length of the scam. Has he been doing this to his investors since the 1970s when he got into the investment business? His investors must be going over their relations with him with a fine tooth comb. Revewing his every glance, their every interaction with him, trying to see whether they missed a “tell” as it flitted across his face, whether his hands shook, whether his face flushed ever so slightly.

And his sons (assuming they were not in on the scam). How to deal with having a father who has destroyed their lives and their families’ lives as well as his own. How can they understand their father’s entirely clandestine life and mental activity? A clandestine activity that in a different sense was as public as can be, played out for the audience with his sons in the front row, acted out like a magician who can show you everything and yet you see nothing.

Jonathan L. writes:

Regarding the issue of Madoff’s choosiness, this is actually not that uncommon in finance. Funds are typically oriented toward particular investment opportunities, and in some circumstances it is quite possible to have too much money and not enough vehicles. Let’s say my fund invests only in small-cap U.S. corporations (of which there are obviously only a finite number) and furthermore my fund’s policy is never to own more than 10 percent of a single entity. As you can see, it is quite easy to hit a wall in such circumstances, and in fact one of the mutual funds in which I have a substantial portion of my savings is now no longer accepting new investors. In Madoff’s case, though, I suspect the choosiness was more the result of social concerns. In a fund such as his, comprised of a small handful of super-rich, super-ego individuals instead of the 1000s of small-value accounts typical of most “retail” funds, the impetus must partially be on avoiding investors who could turn out to be real pains-in-the-ass.

Plus the choosiness no doubt added to his mystique (the now-defunct Long Term Capital Management, founded by two Nobel laureates, had a similar policy).

Posted by Lawrence Auster at December 15, 2008 10:37 AM | Send