Is Madoff the emblematic man of our society?

Terry Morris writes:

I have a question for your more economically astute readers:

Why are we so offended at what Bernard Madoff has done when he, from what I’ve seen, was merely working within a system that basically works on the same principles? Cannot a case be made that the U.S. economic system as it currently exists is a Madoff-style ponzi scheme on a grander scale?

Why are they throwing Madoff under the bus? Why weren’t he and his investors rescued by the bailout?

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Leonard D. writes:

The U.S. economic system does not “basically [work] on the same principles” as a Ponzi scheme. No (legal) part of it does. At worst, we have things like social security, which make promises of future payout that are implausibly large, so long as you assume continued low inflation. However, the U.S. government controls the dollar supply, and there’s very good reason to expect that it will prefer to print money rather than default on debt.

If the economy is a highway, where speeding “gets you ahead” although endangering everyone else, then 90 percent of the economy is driving a sedan at 55mph in the right lane. The banking system is that guy in the Suburban, talking on his cellphone while driving 75 and tailgating when he can’t pass. (He just crashed, as one expects with such awful drivers, and it’s caused a backup for miles.) But Madoff was in a gasoline tanker, drunk, passing on the shoulder at 100 mph.

Mark A. writes:

Having formerly worked in the investment field, I can offer a certain perspective on Madoff. Pensions plans started disappearing rapidly in the 1980s and 1990s. The interest on your bank account deposit is largely controlled by the Federal Reserve. After Volker was replaced by Greenspan at the Fed, interest rates were pushed down. In 1998, Phil Gramm and President Clinton repealed Glass Steagall. Interest rates are kept near one or two percent. Guess where you have to put your money? The stock market of course (if you want any return on your investment.) No more nine percent interest on your bank deposits like 1985. Fund managers make their money by charging a fee on how many assets they manage. The entire country got in the act. Pouring more and more of their paychecks in the stock market. This explained a lot of the increase in the SP500 in the 1990s. I used to peruse company financials back in the 1990s—they were making money on their financial holdings, not out of operations. The whole thing was sort of a ponzi scheme.

Fast forward to 2009. The SP500 is down over 60 percent. The smart money has pulled out of the market. The suckers (i.e. John Q. Public) are left with nothing in their 401(k)s. But the guys who ran their banks are getting bailed out. The fund managers are gone. On a beach earning 20 percent. They’re long gone.

Enter Madoff. Is there a better man to represent the system? The American economy is a Ponzi scheme. From the Wall Street hustlers down to the Mexican cleaning your office toilet, hoping he can get a taste of the good with the gringos …

Posted by Lawrence Auster at March 12, 2009 01:28 PM | Send