Most of us have been trained well—we find the guilty ones in life, so that we can proclaim our own innocence. Some religions teach that the guilty ones go to hell; so much more important than to be one of the innocent ones whose ticket is punched for heaven. Now, none of this may be occurring on a conscious level; but if we are aware, we can observe how we relish in judging others for small infractions as well as for massive crimes. This week, with the sentencing of Bernie Madoff, we reeled in a big fish—it would hard to imagine someone as unambiguously guilty.
At his sentencing hearing, not one person spoke on Madoff’s behalf; and I won’t either. However, I will point out an unpleasant truth—present day America is full of Bernie Madoffs. By “full of Bernie Madoffs” I don’t mean full of people who have set up $50 billion Ponzi schemes; I mean people who think nothing of spending other people’s money as though it were their own or people who think trustworthy behavior is a ticket for being left behind in life. America is being destroyed by our Bernie Madoffs.
More individuals in America resemble Bernie Madoff than we care to admit. Some sink to the level of criminality, some don’t; but regardless, their actions erode our freedoms. First, given the size of the fraud and the countless false statements detailing trades that never occurred, it is likely that tens, if not hundreds, of others were involved in Madoff’s fraud. In May, it was revealed that Jeffrey Picower took out over $5 billion of “gains” from his Madoff fund. According to Reuters, Irving Picard, the trustee overseeing the liquidation of Madoff’s assets, “claimed that in several cases Picower’s purported annual rates of return were more than 100 percent, with some annual returns as high as 500 percent or even 950 percent.” I expect that we will be hearing more about Picower’s relationship with Madoff.
And what of the innocent Madoff investors, the ones earning merely 10-15% a year? Only those ignorant of economics and finance could believe in the financial “perpetual motion machine” run by Madoff; only the ignorant could believe that losses are a thing of the past and a steady stream of gains is here to stay. No doubt some, despite their wealth, were ignorant; but surely, more than a few must have suspected that something was wrong. Some of these “innocents” are now demanding that the government pay them, not only for the money that they originally deposited with Madoff, but for the “gains” that their false statements showed. In other words, while many non-Madoff investors found their stock funds down by 50% or more, these “innocents” believe that they should receive the false gains that Madoff promised. And who would pay for this? Why, the taxpayer, of course. No, these “innocents” are not guilty of fraud; but like Madoff, they behave as though other people’s money is their personal piggy bank.
Yes, I know that there are many Madoff investors who would be happy to have their original investment refunded; they have no designs on false gains. Our hearts go out to these investors for what to them must be terrible suffering.
This week, alongside the Madoff story, the Washington Post reported that “Sen. Daniel K. Inouye’s staff contacted federal regulators last fall to ask about the bailout application of an ailing Hawaii bank that he had helped to establish and where he has invested the bulk of his personal wealth.” Shortly after the phone call, Inouye’s bank received $135 million.
Of course, Inouye’s conduct is part of a much bigger problem. Bill Bonner answered his own question about Madoff: “Isn’t he the biggest financial scammer of all time?”
Well…he’s the title-holder now. But he has a lot of competition close on his heels. Bernie’s crime was taking money from people under false pretenses…and then being unable to give it back to them. How is that different from the financing activities of the US government?
This year alone, the feds will borrow 50 times as much money as Bernie managed to take in during his whole 20-year career. They can only pay it back by borrowing even more money from more lenders. This is not very different from the typical “Ponzi” scheme, except that it’s the government doing it. Eventually, the suckers are going to lose a lot of money.
It is easy to rail against government, but what about the likes of Donald Trump, respected and admired by many? The Wall Street Journal recently reported on Donald Trump’s deposition taken in late 2007 as part of his lawsuit against author Timothy L. O’Brien. The Journal describes Trump’s definition of being “sold-out”:
Mr. Trump told The Wall Street Journal in November 2007 that he sold all 1,282 units at his Las Vegas condo project that he owns with casino and hand-truck magnate Phil Ruffin. There were $1.3 billion in proceeds coming from that project, he told The Journal and other news outlets, including CNBC.
In the deposition one month later, he said he had deposits for around 900 units. Mr. O’Brien’s lawyer, Andrew Ceresney, asked whether Mr. Trump was caught in a lie?
“That’s not a lie,” Mr. Trump said. He said that he was holding on to the rest of the units as an investment. “I’m a buyer also, essentially.”
Trump was also asked whether “he has ever exaggerated in statements about his properties.” Trump’s response:
“I think everybody does,” he said in the deposition. “Who wouldn’t?”
A follow-up question: Does that mean he inflates the value of his properties in general, nonfinancial public statements? “Not beyond reason,” he said in the testimony.
And just who is the arbiter of what “not beyond reason” means? Of course, Trump himself. I personally would never knowingly do business with the likes of a Trump; and if I was forced to, I would be backed by an army of lawyers and accountants. How quickly would commerce grind to a halt if everyone did business the Trump way?
As for Madoff, he will never be a free man again; but we are not safe. The same culture that produced Madoff, produced his investors, produced Trump, and produced Washington, D.C. Our troubles are just beginning, and we are not innocent. At a minimum, we are collectively ignorant of the values and principles that preserve freedom.
On this Fourth of July weekend, we can be reminded of Jefferson’s words: “If a nation expects to be ignorant and free…it expects what never was and never will be.”