Madoff: Case Study of a Master Seducer

Two more Madoff profiles, one in New York Magazine, one in Vanity Fair. Naturally they focus not on the technical aspects of his fraud but on how he maneuvered among and affected Society (not to be confused with "society").

Bit by bit, little details emerge about Madoff's seduction tactics, which worked remarkably well on a group of people you would have thought was not vulnerable to it. Either he was extremely good at the art of con, or his victims were more gullible than I thought, or a little of both. Most people concentrate on the latter, but don't discount the former.

(What makes it even more amazing is that, unless I'm missing something, his taxable investors didn't earn all that much more investing with him than they would have in municipal bonds. The idea that Madoff "made people rich," as the VF article in particular states, doesn't seem plausible. Per the NY article his returns averaged 12% a year, which as I understand his trading strategy would have been taxed near the top marginal income tax rate. For most of his NY investors that's about 50%, so their net returns after tax were not that much more than what they could have earned in NY munis. But there's no country club for people who invest in NY munis.)

Seduction--in the non-sexual sense of persuasion based on something other than the pure merits of something--is not taught in school, and it's a highly undervalued part of investment manager selection. It's a dark art, but I think it's ultimately amoral, not immoral. Legitimate investment managers, especially those looking to raise money, should probably study Madoff's methods. Unfortunately, they work.

Not on me though . . .

Comments

[Gojijoan:]

It's a classic "Who you know, not what you know" philosophy that went terribly wrong. How could these investors turn over their life savings to a person they don't personally know. A fool and is money are soon parted. Stick with people you trust. PERIOD.

Mar 12 10:44 AM

[xsellside:]

What's stunning is how many investors gave ALL THEIR MONEY to Madoff. This violates the most BASIC rule of investing, diversification.

Mar 12 10:58 AM

[samwise:]

you're an idiot. the worthlessness of a dirt bag like you saying "his returns weren't impressive." grab the pistol and blow your ignorant brains out now.

Mar 12 11:40 AM

[jackooo:]

Yeah...Trust the government.

Mar 12 12:05 PM

[bobbobwhite:]

I have a very wealthy friend who very successfully seeks out muni bonds wherever they exist in the world for the very best risk/return ratio. The odd twist to all this is that Madoff could have done that same thing for real and not done more than 1-2% worse in 28% EQ returns than the ones he promised to his rich clients. But, of course, then there would be overhead costs of actually doing business, which this shtunk mostly put in his pocket instead of actually paying it to do real business. But, he had employees...what were they doing other than sending out fake statements? They could have been doing real business! Even fake work doesn't get done free; gelt out is gelt gone.

I think he was meshigas as much as the schlemazls he duped. He could have run a real business all along with comparable returns actually achieved to what he promised. And, he would have been somebody other than a farkaikte goniff in the end, and where one is at the end is what counts in this life while facing his maker.

Mar 12 03:35 PM

[sr9web:]

Thanks for the Yiddish - I appreciate your fluency. To me, Madoff is 1st and foremost, a schnorrer and a darn good one. In fact, he spent so much brain power thinking up ways to mooch, that he had no brain power left for actual work. When the whole mashugga megillah is finally known, it will boil down to this: Madoff is a prodigy when it comes to mooching. Had he only been a fund raiser for B'nai ‘Brith instead of a schmuck, what naches the community would feel as they witnessed the endless amounts he raised for good causes. But instead, we are left to kvetch, "Oy! How did this happen? "It's not enough that Madoff has to steal, but he's gotta rob his own community too? What a putz!" Hopefully, someday, this will all be cleared up. But until then, Madoff should have to watch videos of the yentas from The View 24x7 until he tells us where all the hidden money is!

On Mar 12 03:35 PM bobbobwhite wrote:

> I have a very wealthy friend who very successfully seeks out muni
> bonds wherever they exist in the world for the very best risk/return
> ratio. The odd twist to all this is that Madoff could have done that
> same thing for real and not done more than 1-2% worse in 28% EQ returns
> than the ones he promised to his rich clients. But, of course, then
> there would be overhead costs of actually doing business, which this
> shtunk mostly put in his pocket instead of actually paying it to
> do real business. But, he had employees...what were they doing other
> than sending out fake statements? They could have been doing real
> business! Even fake work doesn't get done free; gelt out is gelt
> gone.
>
> I think he was meshigas as much as the schlemazls he duped. He could
> have run a real business all along with comparable returns actually
> achieved to what he promised. And, he would have been somebody other
> than a farkaikte goniff in the end, and where one is at the end is
> what counts in this life while facing his maker.

Mar 13 12:07 AM