Bernie Madoff (Ethics) - Essay Example

Most Ponzi schemes or pyramid schemes end up collapsing because new investors begin to dwindle and the return on investment promised quickly declines. What Madoff did that set him apart was to run a successful Ponzi scheme for years and to use charisma, charm, intelligence and advanced accounting to keep auditors, regulators and investors at bay. One thing that clearly contributed to Madoff's success, both because it expanded his resume and because it allowed him to know how to make his business appear legitimate, was that he was a well-established Wall Street player in legitimate operations.

He made his money as a stocks wholesaler in the early days of the telecommunication boom when Wall Street would transform utterly. He could point to years of legitimate success when he wanted to assuage the fears of his investors. The frightening fact about Madoff's one-time legitimacy is that it indicates, as do the Enron and WorldCom examples, that Wall Street's mainstream culture does not seem to weed out potential conmen. Rather, the opposite seems to happen: The culture of Wall Street either seems to sharpen existing predatory urges or causes businessmen and financial whizkids to seek out ever-higher rates of return.

Of course, Madoff pointed out as he was being arrested and tried that no one was complaining when he was returning them double-digit returns, even though it is clear that it is almost impossible for such returns to be legitimate. One issue might be the inequality at the top of the ladder itself: Hacker and Pierson in Winner-Take-All Politics point out that winner-take-all inequality, where the top 10% gain the lion's share of economic growth, leads to a situation where the rich are more and more likely to invest into extremely risky financial instruments.

Madoff, like all good conmen, made sure to psychologically control, reward and assuage his participants. Investors in his money management scheme always were given the direct benefit of his individual charm. He cultivated an exclusive atmosphere, allowing only invited investors to come in, which seemed to indicate both safety (after all, why be so careful about an investment if it wasn't legitimate?) and power. People in Madoff's web felt that they were unique and special, part of a small club.

Madoff consciously cultivated this image. One of the things that contributes to the eventual transparency of Ponzi schemes is that their affectations at exclusivity are totally superficial: It's obvious to anyone that they're desperately trying to get anyone involved, which makes smart people wonder what they're doing with their money. But Madoff was willing to walk away; he managed to cover up his Ponzi scheme not least with the way he treated investors. Madoff made sure, for whatever reason, to distance his family: Mark, Shana, Ruth and Peter Madoff all seemed totally distant from the planning process.

Ruth acted as a public face but it seemed that she was unaware of the fraud. It may have been a desire to protect his family, but it may also have been smart business. The legitimate businesses Madoff ran not only generated profit but were also, in essence, a front: He could use those ventures to shield problems in his illegitimate schemes and could use it to find victims. By scrupulously preserving the integrity of his family and the firm, he made the Ponzi scheme more viable alongside protecting his cash cow.

He even hired people who were less educated and perhaps less intelligent than him, people who would be