December 21, 2008

The Madoff Mirror

Madoff is a Rorschach test. Everyone has their Madoff.

When I first saw the news. I was ecstatic. I have to admit that it was at least 20% Schadenfreude. It is not a very edifying sentiment, but I do not claim sainthood. The other 80% was the recognition that the repercussions of Madoff's swindle would be very positive for the good side of the class war. Madoff's impact on the struggle against Israeli apartheid, to which I am committed, would be even more positive. So much of the wealth he destroyed was funding apartheid. I think these are good reasons to be giddy, even ecstatic. Admittedly, I take a narrow perspective. The chief question I ask about stuff is "how will it affect the battleground?" Beyond that question lay vistas of the imagination that I leave, or I hope to imagine that I leave, for better times.

I don't really care why Madoff did it, or how could he become what he did become, as Silverstein for example does. What this speculation misses is that Wall Street, all of it, is a looting operation. They spend their workday devising ever cleverer ways to take a greater cut of the wealth workers produce. Today, the U.S. "financial industry" consumes a fifth of the GDP, while contributing next to zero (actually, a negative number) to the general welfare. How absurd to describe that looting as an "industry!" I have less respect for wall-street highfliers than for child pornographers. Madoff was a shark among sharks. The only uncommon aspect about him was his position in the food chain. He preyed on other predators. He reminds me mostly of that astonishing passage from Herman Melville:
...and when, accordingly, Queequeg and a forecastle seaman came on deck, no small excitement was created among the sharks; for immediately suspending the cutting stages over the side, and lowering three lanterns, so that they cast long gleams of light over the turbid sea, these two mariners, darting their long whaling-spades, kept up an incessant murdering of the sharks, by striking the keen steel deep into their skulls, seemingly their only vital part. But in the foamy confusion of their mixed and struggling hosts, the marksmen could not always hit their mark; and this brought about new revelations of the incredible ferocity of the foe. They viciously snapped, not only at each other's disembowelments, but like flexible bows, bent round, and bit their own; till those entrails seemed swallowed over and over again by the same mouth, to be oppositely voided by the gaping wound. Nor was this all. It was unsafe to meddle with the corpses and ghosts of these creatures. A sort of generic or Pantheistic vitality seemed to lurk in their very joints and bones, after what might be called the individual life had departed. Killed and hoisted on deck for the sake of his skin, one of these sharks almost took poor Queequeg's hand off, when he tried to shut down the dead lid of his murderous jaw. (Moby Dick, p. 301-2)
Nor am I particularly moved by Philip Weiss's speculations about what Madoff reveals about Jews in the U.S. today. To anybody who has been paying attention, the answer is "not much." Jews are integrated. Some of them have gone up to the highest ranks of WASP society. Hardly world shattering news! John Mearsheimer, whom Weiss quotes, is all over that "aspect," because he still feels he needs to do penance for his sacrilegeous criticism of U.S. support for Israel. But pace Mearsheimer, when did "tribal solidarity" ever stop the sharks from feeding off their brethren? Where was the "tribal solidarity" of Burt Neuborne, Israel Singer and the other Jewish hucksters who made a good life looting holocaust reparations monies? Where was the outrage? The reason Madoff caused such a great shock is not his breach of "tribal solidarity"--a bed time story sharks tell smaller fish before they eat them. Madoff offended so deeply because he breached class solidarity. He preyed on the rich.

Hat tip to Tony Greenstein, who called my attention to James Petras's much more detailed explication of all the positive aspects of the the Madoff affair. Petras has been of late publishing pseudo-Marxist gobbledegook about the "zionist Power Configuration." It seems that the financial crisis has unfogged his glasses. He even reminds his readers that
finance capital shows no respect for any of the pieties of everyday life: Great and small, holy and profane, all are subordinated to the rule of capital.
If I understand it correctly to mean that even the holiness of the Land of Israel is not above the needs of capital, then all I can say is 'Ditto!' It's great seeing Petras coming back to his senses. He hits just about all the bases and is well worth reading in full. But first and foremost is this, which is the main cause for celebration here at JSF:
...the swindle of $50 plus billion dollars may make a big dent on US Zionist funding of illegal Israeli colonial settlements in the Occupied Territories, lessen funding for AIPAC's purchase of Congressional influence and financing of propaganda campaigns in favor of a pre-emptive US military attack against Iran.
As Greenstein says, "If I were a believer I would have no doubt that the good Lord was behind this!" To which I have to jest back with the story about the quantum physicist Niels Bohr, who used to have a good luck horseshoe hanging above his door. Asked by a visitor if he really believed in such obvious superstition, Bohr replied, "of course not, but I am told it works even if you don't believe in it."


The one point on which I must disagree with Petras is him saying that the Madoff affair will put to rest the antisemitic canard that "there is a 'close-knit Jewish conspiracy to defraud the Gentiles,'" (or for that matter any other conspiracy theory.) Perhaps this is Petras's backdoor way of signaling that he no longer plays for that crowd. But if that canard really died from Madoff related causes, it would be the first time ever an argument cured paranoia. I'm less than impressed with the odds.

Indeed, the UFO watching just came up with a new conspiracy theory: Supposedly, all the money Madoff disappeared is safe and sound in banks in Tel-aviv. According to 'sources,' all the defrauded parties are in the loop, and it's all just a scheme to avoid paying taxes to the IRS. doesn't say where this information comes from, but my inside sources whisper that Dana Scully herself discovered it inside the smoldering fuselage of a spaceship that crashed near Reagan, Tennessee. More 'evidence' is going to appear. Bank on it!

In his postscript, unfortunately, Petras makes a common error that feeds general finanacial illiteracy and serves as fodder for this kind of nonsense.
No one can believe that a single person could by himself pull off a scam of this size and duration. Nor can any serious investigator believe that $50 billion dollars has simply 'disappeared' or been squirreled into personal accounts.
Petras ought to know better. To the best of our knowledge, the Ponzi scheme was based on reporting earnings that did not exist. There is a crucial difference between the money that Madoff owes his clients, and any sums he diverted for his own enrichment. the number $50 billions which is bandied about refers to the first. Every year, Madoff most certainly paid himself a nice "compensation package," maybe even an outrageous "performance" bonus. These payments were not in themselves illegal and were most probably in line with the looting standards of other top dogs on Wall Street. Even if Madoff stashed all this money away, which is unlikely given his lifestyle, it won't probably amount to more than a few billions. The FBI and SEC will try to recover that money. As Petras suggests, Madoff must have had accomplices and investigations will probably lead to a few more indictments. It is possible that Madoff took precautions to make recovery difficult. Perhaps he even put some money in Tel-Aviv, or stashed gold in a safe in the Cayman Islands. But either way, this money would be a small fraction of the losses.

The $50 billion (or whatever sum eventually emerges) owed to investors most likely indeed disappeared. It doesn't exist anymore and therefore it cannot be stashed away or moved anywhere. The idea that money "cannot disappear" is based on a misconception of what money is in the contemporary paper monetary system. Money is debt. Every cash bill is a liability of the Fed. Debt also can function like money, although of lesser quality, depending on the creditworthiness of the issuer. When Madoff reported fictitious returns, it is as if he printed money (I say as if, not legally, but the legal form is irrelevant to where the money is). Out of thin air, Madoff created a liability for himself, and an asset for his clients. At any time, his clients could have redeemed their balance for cash. And many did. Or they could pledge their balance to secure a loan, etc. It was good, real money for them. But Madoff was supposed to hold assets that offset his liabilities to his clients. These liabilities were supposed to represent trading profits held in the account. They did not and therefore Madoff eventually was unable to meet his obligations. When this was discovered, the same thing happened that normally happens when an unsecured debtor defaults. The paper held by the creditor becomes worthless. The face value doesn't go anywhere. It ceases to exist, and there is nothing particularly mysterious or impossible about that.

I don't expect the conspiracy theory to be dispelled, because its origins are not in reality but in desire. In particular, the desire to be powerless. After all, the whole point of this fantastic concoction about how the money moved over to Tel-Aviv and all is to imaginatively snatch defeat from the jaws of victory. What is amazing is not that such a story circulates, but how little evidence the author took the trouble to pretend to have. Everything rests on a couple of 'Sources say'... At least with UFOs people take the trouble of doctoring some grainy photographs. The desire to suspend disbelief must be particularly strong in this case.

If one has a worldview that guarantees powerlessness, that provides certainty that no matter what one does, the shdowy and powerful players always win, then the very idea that the powerful might get hoisted on their own petards must be mentally destabilizing. The financial crisis seems therefore also to have created a crisis of confidence in conspiracy planet. (I.e, if they are so smart, how come they are so dumb?) Maybe you have other explanations. I'm looking forward to hearing it. But it seems to me that all this rage that feeds the new conspiracy theories is like the guard dog that follows you barking behind a fence but falls silent where the fence ends. It seems like the big challenge in conspiracy land now is to deny that Zionism, and power in general, have been wounded. There is some similarities to 9/11 conspiracy theories which are about the denial that the U.S. could be successfully attacked by anybody other than its own shadowy government (i.e. the same people who allegedly stole the money and moved it to Tel-aviv). If you think about it, there is some amusing perversity here, that most of these nutcases who shout from rooftops how much they loath the govmint are frightened by any evidence that the shadowy powers that be are anything less than omnipotent.

They are in love with powerlessness.

Which brings us finally to the blog of Xymphora, one of the many places in whose comments sections oppressed white boys can come to share a tear. Xymphora found in Madoff "proof" that Jews believe Jews are superior to non-Jews. The argument is so obtuse that it is worth enjoying in full:
Madoff's investors are sophisticated people. How did they believe that it was possible to make double digit returns for decades? It was because he was a Jew. Jews are superior to gentiles - who really are just animals - and the superior being could produce superior returns. The investors allowed their supremacist fantasies to interfere with their lives in the real world, which is usually how supremacists get into trouble. (xymphora)
In one paragraph, Xymphora manages to build his case on three bonkers assumptions.

First, he assumes what he clearly knows isn't true, that Madoff's investors were Jewish. Many were. Many weren't. Why did Banco Stantader, the biggest loser so far, invest with Madooff? Was it because Spaniards believe Jews are superior investors? And if so, are these non-jews believing in Jewish superiority Jewish supremacists or just fools? And if the non-Jewish investors are just fools? Why aren't the Jewish investors allowed to be just fools? And if they are fools, how can they be sophisticated? My head spins from following this plate of tangled spaghetties.

Second he assumes that people who invested with Madoff were "sophisticated." God knows what that means. That they read Robbe-Grillet and listen to atonal music? Is there some direct link between grubbiness and sophistication?

But maybe that is just a (Freudian) slip of the pen and Xymphora only means that they are sophisticated investors, i.e. knowledgeable about finance. But what makes Steven Spielberg a sophisticated investor? What makes Eli Wiesel financially astute? Inquiring minds want to know. Should we assume that one is a sophisticate investor because one is Jewish? I guess not as that would count as belief in Jewish superiority. Then maybe Xymphora means that rich people are inherently sophisticated investors. Which is plain foolish. After all, rich people often hire other people to manage their money, people like Madoff, because they believe it's a skill they'd buy rather than develop. And rich people sometimes stop being rich people. It happens all the time.

Third, and perhaps the bonkersest, (is that a word?) is the assumption that truly sophisticated investors, people who live daily in financial markets, don't make stupid investment decisions unless blinded by tribal beliefs. Some don't. But many do. All the time. Lev Leviev, who is generally a very astute businessman, lost two billion dollars last year in real estate, without any help from Bernie Madoff. Perhaps Xymphora should catch up a little on the tulips mania, or the South Sea bubble, or the Nobel Prize winning economists who managed Long Term Capital Management. But what is particularly mind boggling is that Xymphora makes this bonkers assumption barely two months after the greatest financial minds on Wall Street, paid hundreds of millions of dollars per year to make their brilliant investment decisions, were revealed to have made multi-billion dollars bets on financial instruments they couldn't comprehend, and the wiseguys at the top of the most sophisticated banks bet the farm on real estate prices going higher forever.

I must say, Xympohra's faith in the intelligence of our betters is touching, but somewhat excessive in light of recent evidence.


Post a Comment