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Posted on Saturday 14 March 2009

Madoff Had Accomplices: His Victims
By JOE NOCERA
March 13, 2009

… As we passed through security, I asked him what role he thought the government should be playing. It was as if I had flipped a switch. Suddenly, his reticence fell away.

“The S.E.C.,” he said, referring to the Securities and Exchange Commission, which muffed multiple opportunities to catch Mr. Madoff, “they played a big role in this. They have a lot to answer for.” He said that the tax code should be changed so that Madoff victims can recoup taxes they paid on profits that turned out to be illusory — no matter how far in the past those taxes were paid. He thought the Securities Investor Protection Corporation, which tries to put at least a little money in the hands of investors whose firms have gone under, should give victims more than the current $500,000 maximum.

“I think there should be some legislation,” he said finally. What kind of legislation? What he was hoping for, he said, was that the government would set up a fund for Madoff victims — maybe give them 60 percent of their losses, he suggested…

“These were people with a fair amount of money, and most of them sought no professional advice,” said Bruce C. Greenwald, who teaches value investing at the Graduate School of Business at Columbia University. “It’s like trying to do your own dentistry.” Mr. Hedges said, “It is a real lesson that people cannot abdicate personal responsibility when it comes to their personal finances.”

And that’s the point. People did abdicate responsibility — and now, rather than face that fact, many of them are blaming the government for not, in effect, saving them from themselves. Indeed, what you discover when you talk to victims is that they harbor an anger toward the S.E.C. that is as deep or deeper than the anger they feel toward Mr. Madoff. There is a powerful sense that because the agency was asleep at the switch, they have been doubly victimized. And they want the government to do something about it…
This is a touchy subject – the Madoff victims. There are loopholes, created for the rich, that allow certain kinds of investment managers to operate outside of regulatory scrutiny. I don’t know the details very well, but it’s the route most Hedge Funds take – off the radar. Such people speak of "Alpha." It means making money on the Market independent of its performance. Their methods are "secret," "proprietory," and unscrutinized. They often relie on "complex financial instruments" – Derivatives.


“When you’re in that Hedge Fund mode,
it’s important not to do anything remotely truthful”

Cramer discusses some of the methods used by such people. People thought Madoff was doing the kinds of things Cramer discusses in this interview – manipulating the market ["creating the fiction"]. As disgusting as this discussion, Cramer is playing it straight compared to Madoff. Well, the wealthy people investing with Madoff thought he was a master-manipulator like Cramer taking advantage of other people and bleeding the market. But now they discover that he was, indeed, a master-manipulator, but that he was bleeding them instead. If they wanted SEC protection, they should’ve stayed in the real market instead of the netherworld of Hedge Funds. While it’s hard not to feel bad for them because of their losses, it’s also hard not to say what Nocera says, "You made your bed – lie in it."

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