Thursday, December 18, 2008
Men have been swindled by other men on many occasions. The autumn of 1929 was, perhaps, the first occasion when men succeeded on a large scale in swindling themselves.
— John Kenneth Galbraith, The Great Crash
Put in a positive light, so as not to cast a pall over the joys of the Christmas season, Bernard L. Madoff should be viewed as someone who has expanded the consequences of one of the great new traditions of the holiday season to a group that never expected to share in it. The tradition to which I refer is the tradition of corporations large and small alike informing their employees that in the new year they will have more time at home with the family. That news is always accompanied by the news that there will no longer be a paycheck, thus, in most cases, reducing the quality, if not the quantity, of time spent at home with the family.
The timing of the announcement is nothing more than a sad coincidence that results from the conscientious (and usually high paid) executives’ year-end examination of the performance of the company. They cannot be blamed for the fact that Christmas and the year-end coincide. In addition to the sad news imparted by employers of ongoing companies to employees, in 2008 many companies were forced into bankruptcy and retired and former employees learned that pension plan payments and health insurance benefits might be reduced or eliminated because of the company’s misfortune. (People with IRAs and other retirement accounts have seen the value of those accounts reduced by close to one-half thus permitting them to at least partly share in the joys of the season.)
Unaffected by such misfortunes, until recently, were the highly paid executives of these companies. Similarly unaffected were the wealthy who relied on investments, rather than pay checks, to maintain their standards of living. Thanks to Mr. Madoff that has all changed. Whereas the beneficiaries of the imposition of cost cutting measures that have cost them their jobs now have more leisure time, the beneficiaries of Mr. Madoff’s business practices, though having no less leisure time, will find its quality greatly diminished.
Thousands of extremely wealthy individuals have now learned that their wealth has been taken from them by a man who led them to believe for years, if not decades, that their fortunes were safe if entrusted to him. In that respect they were like the long-term employees of corporations who believed that nothing was more important to the executives of their companies than their future welfare and comfort.
For more than 30 years, Mr. Madoff was the darling of Wall Street and thousands of people who invested with him. In some cases would-be investors joined Tony country clubs in order to gain access toMr. Madoff. Many big names in the financial world invested with Mr. Madoff. Mr. Madoff seemed to guarantee a modest but consistent return that enabled his clients to live in the style to which they not only were accustomed but entitled, thanks to their accidents of birth, in some cases, and their business acumen (except when it came to investing) in others.
Mr. Madoff is not the only financial wizard whose efforts have leveled the living field between employees and their more affluent counterparts. On December 14 the New York Times reported that Marc S. Dreier the founder of the 250-lawyer Dreier L.L.P. Park Avenue law firm had bilked clients and his law firm of more than $380 million. Among other things, he represented the Solow real estate firm for many years and began drafting and selling fictitious promissory notes that had apparently been issued by the firm. Like Mr. Madoff, Mr. Dreier was a one-man swindler. None of the 250 lawyers who worked with him were aware of his activities. He had no equity partners and there was no executive committee to review the overall operation of the firm. In addition being a one-man operation, there were other similarities between Mr. Dreier and Mr. Madoff.
Each of them owned three expensive homes and each of them owned a yacht. Mr. Dreier’s was docked in Manhattan whereas Mr. Madoff’s was kept in the Bahamas. Both men were generous to a fault using their money to support a variety of charitable causes although it was not, of course, their money.
Thanks to Messrs. Madoff and Dreier, many people who have lost all or significant parts of their savings will now relate more easily to the touching and sad picture on the front page of the New York Times of former Chrysler employee, Cindy Spisak, being hugged by Douglas Yandura after she was laid off by Chrysler. They now know exactly how she and millions like her feel because that is how many of them feel. Maybe Doug Yandura will come by and give them all hugs. Messrs. Dreier and Madoff won’t. They’ll be confined.