The $65 Billion Lie

The occasion, recently, of Mrs. Bernard Madoff's using the subway, and being ridiculed for doing so by the New York Post, is the inspiration for this little bit of rhetorical virtuosity.

Let's begin by putting things in perspective, something the for-profit media seemingly cannot do. Because Bernard Madoff's crime is, according to the headlines at least, running a "$65 billion Ponzi Scheme," a review of what a "Ponzi Scheme" is would be a good start.

Charles Ponzi, of Boston, recruited investors by, as all investment recruiters do, offering attractive returns. When he was unable or unwilling to actually produce those returns in fact, he did so by the sleight-of-hand device of using the subscriptions of later investors to provide the returns for the earlier ones. If this practice sounds familiar, it's because governments do it all the time, but they call it "Keynesianism" and it's perfectly legal, for them anyway.

At some point, however, later investors couldn't be found to pay off the earlier ones, and so ground the merry-go-round to a flaming halt. And since then, this age-old scam has been called a "Ponzi Scheme."

The principle of cognitive consonance requires an acknowledgement of the fact that the Ponzi-schemer doesn't simply take in money from gullible investors and salt it away in a Swiss Account for himself. No, he returns it -- redistributes it, really. And while redistribution schemes by any name are morally questionable, they are the stock-in-trade of progressive governments everywhere. But they claim the monopoly on the practice so that, if anyone else does it, it's a crime.

In fact, Mr. Madoff deposited his receipts in interest-bearing accounts and never exposed them to market risks. He never, for example, promised double-digit returns to pensioners and then buried them in vaporous derivative securities, as many hedge funds -- which still enjoy status as legal entities -- have. If anything, he did the opposite: he put his investor's hard earned assets in the safest possible places: bank accounts. Not much of a big, greedy scam, if you ask me.

Perhaps an accounting of the Madoff funds would show that Mr. Madoff skimmed the interest income. Or that he used the credit balances as backing for cheap capital for his own, successful, and legitimate businesses. I don't know what it would show, because I've never seen one. And I gather that it's because what it would reveal would be a terrible disappointment to the public. But one thing it would certainly show is that Mr. Madoff, however much he might have skimmed, did not steal -- could not possibly have stolen -- anywhere near $65 billion.

If Mr. Madoff recruited something on the order of $65 billion in investments, it follows -- by the very definition of "Ponzi Scheme" -- that he returned, or redistributed it to his investors. In either case, he certainly didn't steal it. His crime, therefore, is a technicality, not a theft. He also apparently had difficulty saying "no" when people accosted him to manage large sums of money for them. And for that, of course, they hate him.

Ever on the lookout for a sensational Public Enemy, the media can't acknowledge the facts. I say "sensational," because the true public enemies are simply seldom newsworthy. Imagine pitching the headline, "Government Redistributes Wealth Again Today" to your editor. It just wouldn't sell.

Mr. Madoff did do something so unusual, and so extraordinary, that it is worthy of a story: he got up one morning, and disclosed his illegal activities to the authorities. He wasn't being investigated -- in fact, the SEC ignored evidence that cried out for an investigation of him. Instead, he presented himself to the legal system fully ready to cooperate, and he did so of his own initiative.

I think it's a safe bet that there are lots of people riding the subways in New York City who would never confess their crimes to anyone. They're probably riding in limousines, too. There are people sitting behind laptops, hammering out news stories, who would wilt under a moment's public scrutiny of their personal shortcomings, who will never have to endure the full heat of a trial by public opinion.

As it takes a measure of integrity to confess ones wrongs, so it takes a measure of character to endure a public excoriation for it. The Madoffs, at least, will wake up better people for having done so.