least that’s how it seems to be playing out these days. “Here,” the banks were
telling Americans, “you can have your dream home – the one you saw every week
on Desperate Housewives and The Sopranos—you can pay us later.” Then they
packaged up these people’s debt and sold it to the rest of the world as a sound
investment. It was no such thing and the collapse of their house of cards was
inevitable. Or as Bernie Madoff, himself the architect of a classic Ponzi
scheme, said: “I realized this day, and my arrest, would inevitably
For those unfamiliar with Ponzi schemes, a
little history is instructive. In 1920 Charles Ponzi began raking in hundreds
of thousands of dollars a day, promising a 50 percent return on investment in
45 days and 100 percent in 90, all by trading 1 cent Spanish stamps for 5 cent
American stamps. If you believed that, he had some land in Florida you could
buy—but that came later. In fact, Ponzi was paying early investors that
fabulous return from money he was collecting from later investors.
He served some time, but escaped another
sentence by skipping bail in 1925. He disappeared, along with $8 million of
other peoples’ money. Six banks went under in his wake. A little later, a real
estate bubble in Florida burst when investors discovered that lots they
purchased from enthusiastic real estate agents were under water. A man by the
name of Charpon (aka Charles Ponzi) was one of those promoters.
The scam run by Bernie Madoff was the same
thing: people with a lot of money and people with a little money gave what they
could because he had a sure-fire scheme. He paid early investors from money
collected from later investors until he didn’t have the money to pay anyone
(except for the cash tied up in his own extravagant purchases). Within a few
hours of his sentencing, the New York Times logged over 700 angry comments on its web site. I read over 100. They all viscerally condemned Mr Madoff to Dante’s eighth circle of hell.
The story of Faust comes to mind: the man who
sold his soul to the devil for a life-time of good times. We can only hope the
devil is coming to collect his debts from the hundreds of AIG and Merrill Lynch
executives who skimmed their bonuses from the billions of dollars of tax
payers’ money the US government is handing to their failing companies. When was
the last time you were given a bonus for bringing your organization to the
brink of bankruptcy?
As Margaret Atwood points out in her book, Payback: Debt and the Shadow Side of Wealth, debt is kin to sin. Greed, the Catholics tell us, is not good. Greed
rationalized by pride (I deserve it) and fuelled by gluttony (I deserve more of
it) is even worse. Add covetousness (of other people’s money) and you’ve got 4
of the 7 deadly sins driving the financial sector. “Enlightened self-interest”
is sounding more and more like an oxymoron; or that impossible, fairy-tale
beast, the manticore (head of a man with three rows of sharp teeth, body of a
lion and tail of a scorpion—it guards the fraudsters trapped in Dante’s eighth
circle hell). If all this feels like a morality play unfolding around you, it
is. And it’s about time we recognized it as such.
Sin, in the ancient Hebrew sense of the word, means missing
the target, the proper target being God, or at least righteous behaviour. So,
people who sin are not so much evil as moral idiots. Think of Madoff and bonus
hungry executives as a fiscal Gang that Couldn’t Shoot Straight. Unfortunately,
their stray bullets have taken out a lot of innocent bystanders—“marks” as the con men like to call us—as well as some countries.
Jon Stewart summed it up nicely in his smackdown with CNBC’s Jim Cramer on March 12: “They’re using our own money to burn the house down.” And that’s precisely why more, not less scrutiny is needed. These people are using our money to do what they’re doing and when they screw up, they’re turning to the government for more of our money. It is in our interest that they be first held to account and second, watched like hawks.
But both are hard to do when the watchmen are
also such bad marksmen. The Daily Show exposed CNBC’s terrible record of
financial journalism. Jim Cramer’s taped not-for-air musings about what goes on
in the hedge fund business sounded more like a confession than an
investigation. CEOs interviewed on air straight-out lie to a cheerleading media
that is too embedded with business to peek under the covers to see who’s really
doing what to whom.
Even when someone hands them the goods (Harry Markopolos handed the Wall Street Journal his evidence against Madoff in 2005) they don’t pursue the story. And when
Makopolos first tried to get the US Securities and Exchange Commission to take
a hard look at Madoff’s scheme in 1999—they chose to see no evil. Canada’s own
media reports on business are no better.
Then there are the so-called free market
regulators (now there’s an oxymoron). Bond rating agencies such as Moody’s and
Standard and Poor’s are the same ones that determine governments’ credit
ratings. They gave AIG, Fannie Mae and Freddie Mac triple-A ratings; but now we
know that they bungled their analyses of bonds backed by subprime mortgages.
Well, the devil take them all, say I.
© David McLaren