In our new Gilded Age it seems that only the Robber Barons really make out. Reading about the pathetic saga of Bernard Madoff and his Ponzi scheme, one is led to think that in our society, where probably 99% of the populace go about their personal and wage-earning lives with integrity and a naive, trusting faith, that the Little Guy just doesn't have a chance anymore. Add up all the cons, frauds, schemes, deregulation over the last twenty years or so and you must come to the conclusion that in modern American society, only crime pays. Enron, the mutual fund scandals (inside dope to big investors, which Spitzer prosecuted - it's why he had to go), Martha Stewart, the subprime/Moody's/Big Investment Bank conspiracy -- these are headlines, but they barely scratch the surface. The truth is that the entire financial system in the United States, including these vaunted "markets" that Bush/Paulson want to prop up, are all absolutely rotten to their core. And in a decadent system where everyone has abandoned the idea of true productivity, the only people who are going to make money are the short-sell players (like John Paulson's hedge fund) and the crooks.
This is why it's so natural for Henry Paulson to embezzle $350 billion authorized by Congress and give it to friends and associates to reimburse them for the losses stemming from their criminal enterprises. Congress members, like Barney Frank, cluck about it -- they're "disappointed," but they don't do anything. It's actually what Congress expected. Their campaign finance bills are paid by the same crooks. Our liberal "friends" in high places, like Chuck Schumer of New York, who has personally guarded the capital gains rate tax advanage of hedge fund managers making billions; Joe Biden, who offered full-throated support for that awful Bankruptcy "Reform" Act to protect his credit card company friends -- get wise, little people. They are not looking out for you.
When you look at it this way, you begin to see that the main difference between Bernard Madoff and someone like John Thune at Merrill Lynch is that Madoff dispensed with formalities and simply stole his investors' money outright. He just cut out the pretend part - the part where he "invests" your money in some worthless "security" which evaporates like water on a Phoenix sidewalk in mid-July. The investment bankers played a different game, which was to package millions of mortgages which they knew to be dodgy into huge "bonds," then paid Moody's to slap a Triple A sticker on this pile of crap, then used the imprimatur of the august, thoroughly corrupt ratings service to sell the "securities" to pension funds, hedge funds, high rollers and Norwegian School Teacher Credit Unions. The investment bank took its money at the front end; commissions and fees, which soared into the billions, which they doled out to the best con men among them. Unfortunately for the banks, a lot of them also bought their own bullshit, or got caught up in credit default swaps which tied them inextricably into the demise of the American financial system.
So look -- why should you be left out? When I was doing securities litigation a couple of decades ago, I studied the venerable art of the Ponzi scheme up close, as a lawyer trying to recover money for an "investor" in such a fraud. It's not easy because Ponzi operators are not big on keeping detailed books. The "books" which do exist are about nonexistent things: investments never made, dividends never paid. I'm not saying in your own Ponzi scheme that you won't have to use your imagination - that's the fun! Be like Bernard Madoff and give your pathological lying full latitude. Make it all up.
He cheated his friends, Elie Wiesel, charities, Steven Spielberg, foundations, schools, hospitals, universities. The one question I have to ask: aren't you sort of asking for it if you give your money to someone who pronounces his last name Made-off? I guess. On the other hand, it shows you just how far you can push things. Could you set up a Ponzi called the Ima Rippov Fund? Why not try it?!
The basics are simple. You have an external burn rate (EBR) and an Internal Burn Rate (IBR). Let's see your fund in action. It has a name, like Bernie's "Ascot Partners." (Classy, huh?) Yours has a marine theme - the "Pond Sea Fund." That's pastoral and soothing, I think. You start with ten good friends who put a million up (have them mortgage their houses to the 125% level) and you promise them 10% per annum. So your EBR (what you pay out) is $1 million per year. You pay yourself $1 million too. You have to have fun while you're doing this. Look at Bernie: apartment in Manhattan, house in the Hamptons, house in Palm Beach, villa in France, 55-foot yacht. It didn't all go strictly into overhead.
Your friends will do most of the work for you after that. They're making 10% on their money! Spread the word to children's cancer hospitals, the March of Dimes, disaster relief funds, Lighthouse for the Blind, your college alma mater - let them all in on this good thing. The math does not change much. When you hit $100 million, your EBR is still only $10 million, and you may as well increase your IBR to $10 million too. Start buying real estate, nice second, third, fourth homes, in countries which do not allow extradition for financial crimes. Also, get a good long range jet and a pilot who can fly beneath radar cover.
And whatever you do, don't make Bernard Madoff's mistake. Don't stay too long at the fair. Sure, you could push your haul to $100 million, $500 million, a billion dollars. What's the point beyond a certain number? Finally, on that big day, you declare the Internal Burn Rate is going to 100%, payable immediately. However much is in the Pond Sea Fund is yours. You wire it to that waiting account. You put on your nice black suit and get into your nice black Mercedes and drive down to the general aviation field of your local airport where your fake flight plan (everything you've done for years is fake, this is easy) calls for a 3 am takeoff. You leave all your troubles behind, including suicides among your friends, destitution, deaths of untreated children, fired teachers at the schools you destroyed, foreclosures left and right, alcoholism, despair, hopelessness. Really, a whole lot like what an awful lot of Americans are going through after investing in "honest" securities with Lehman Brothers, Goldman Sachs, Merrill Lynch, Fannie Mae, Freddie Mac. So now you've done it - you've achieved a real American success. One not requiring a bailout, either! But just like your heroes in the "straight" financial world, it's going to work best if you enjoy it somewhere else.
Actually the entire social security /medicare thing is almost an identical to Madoff's ponzi scheme. We pay from those who put in, but there is nothing in the basket -- I mean, nothing but IOUs in the basket. I know I'm jumping to a different sheet of music here, but what crossed my theologically oriented mind is the fact that apart from God, none of this really matters because nothing matters. Madoff may have been caught, but a lot of crooks are not caught -- and ultimately there is for them no judgment, except perhaps from a tormented conscience-- but then where did such a thing as a conscience come from? Scripture says that this is an evil world. I think that is pretty obvious.
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