We need the brush of Caravaggio to depict the awful scene where–at least on their lawyer’s account–the sons of Bernard Madoff confronted the errant paterfamilias, who informed his offspring that the cupboard was bare, the investors had been duped and all these years he’d been running "a giant Ponzi scheme." But this time, reversing Caravaggio’s terrifying image, it was the old man who was bowed over the sacrificial rock and the sons with knives raised to dispatch their white-haired progenitor, turning him in to the FBI. Of course, there have been unkind souls eager to suggest that the three men had been working cheek by jowl for twenty years and that Bernie and his boys were in cahoots on the triage as an exercise in damage limitation. To such cynics I say, "Pshaw!"
On the other hand, I lend a more receptive ear to those who say that at least some of Madoff Sr.’s clients were not so naïve as to believe he had a virtuous investment model that permitted him to report 10-12 percent annual returns on capital invested, through boom and bust. They thought Madoff indeed had a secret model, but one coming in the distinctly unvirtuous form of insider information.
The most gullible marks are those who preen themselves as being privileged accomplices in a profitable conspiracy where they have no personal exposure to legal sanctions. Madoff’s prosperous victims fatally miscalculated the dimension of the swindle. As instruction on how to get through life in one piece, Madoffgate is proof of the old rule: the more elegant the tailoring, the more handsomely silvered the distinguished locks, the more innocently rubicund the visage, the more likely the hand covertly fishing for one’s wallet.
On the larger canvas, what exactly separates Madoff’s operation from those of the banks rewarded for their shady follies by a $700 billion bailout? Just like Madoff, the banks finally had to admit that all their public financial statements were false, that the supposed assets were worthless. Unlike Madoff, who looted his clients of a mere $50 billion, they were "too big to fail."
The operating assumption of the Ponzi scheme is that the tide will always rise, that old investors can be repaid by the infusions ponied up by the fresh recruits. For the past twenty years the entire American economy has become–to quote again Bernie’s succinct résumé of his business–"a giant Ponzi scheme," bloating out like the metastasizing planet described by Stanislaw Lem in his strange science fiction novel Solaris.
Uncle Sam is the biggest Ponzi operator of all. Bernie had to constantly replenish his fund with new deposits. So does Uncle Sam, wheedling more money out of the Chinese, the Indians, the Japanese and poor Third World nations forced to pony up at the point of a gun. But in the end Uncle Sam has one huge asset denied Madoff, who seems to have stopped short of the straightforward forgery allegedly practiced by Marc Dreier, the Manhattan lawyer arrested in Canada for trying to sell nonexistent bonds to the tune of $380 million. Uncle Sam has the printing press to run off the necessary dollars. He’s certainly going to need lots of fresh new bills. You can set your clock now for the alarms scheduled to go off all the way through Obama-time: credit card debt, commercial real estate implosion, option-ARM financing.