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Where is the $50 billion Bernie Madoff claims to have lost?

Clearly, some of it went to the guys running the feeder funds, like Walter Noel, but that doesn’t appear to add up to close to $50 billion.

There are two kinds of Ponzi schemes: the kind where you do some investment that can’t pay off in the long run and the kind where you don’t do anything at all and just pretend to invest it. Harry Markopolous demonstrated that Madoff couldn’t be actively pursuing the “split-strike” option strategy he claimed to be following because not enough of those types of options were traded in the whole world. So, was Madoff doing anything with the money other than paying it out to earlier investors?

Perhaps he recently started making wild bets in the markets to try to get back to even. But where is the documentation for these trades?

Or do he and his loved ones have it socked away somewhere? So far, his houses and yachts that have surfaced sound like those of a man with hundreds of millions — but not tens of billions — of dollars.

It’s a $50 billion puzzle …

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From The Forward, the New York Jewish newspaper:

What Sort of Man? Madoff on the Couch

By Marissa Brostoff
Thu. Dec 18, 2008

In Shakespeare’s play “The Merchant of Venice,” Shylock, the usurious lender, attains the status of literature’s classic antisemitic stereotype, in part because of his relentless preying upon non-Jews.

But the victims devastated by Bernard Madoff, the investment guru charged with running an alleged Ponzi scheme that blew through $50 billion of other people’s money, were primarily his own.

In this, say observers looking at the case through a psychological lens, Madoff achieved a wholly different level of notoriety.

“Hitherto, all ethnic groups who ascended into a national class of benefactors made their wealth off other ethnic groups,” said Nelson W. Aldrich, author of the 1996 book “Old Money: The Mythology of Wealth in America.” “They soaked the Irish or sued the French Canadians. They wouldn’t dream of doing what Madoff did.”

This is not to say that Madoff excluded non-Jews from his ruinous scheme. Several large European banks and other non-Jewish institutions and individuals lost millions, even billions, through their investments with Madoff. But in interviews with the Forward, mental health experts agreed that from a psychological point of view, Madoff’s exploitation of his vast Jewish network of friends — many of them close — and acquaintances to bring investors into his alleged Ponzi scheme constituted a level of behavior verboten even as criminal actions go.

“He might have violated a primitive rule against hurting your own tribe,” said Ira Moses, director of Clinical Services at the William Alanson White Institute, a psychoanalytic training center. “He may have broken a taboo amongst criminals.” …

The novelist Nathan Englander said that he generally has no patience for the idea that Jewish misdeeds will stoke antisemitism. But he said that the Madoff scandal — with its long lists of bilked Jewish charities and individuals covered in major newspapers — embarrassed even him.

“It really raises up for me this primal thing of, ‘This is the kind of thing that looks bad in a general Jewish way,’” Englander told the Forward. “It gave me that ‘circle the wagon’ mentality that I don’t have very often.”

Yet this kind of betrayal from inside a community is not unheard of — there is even a name for it: affinity fraud — but it is unusual.

How Madoff might have justified to himself his exploitation of his own community — in which he was not only a major philanthropist, but also actively engaged in an elite country club scene in Palm Beach, Fla., and New York — would depend on the extent to which he believed his own lies, psychologists said.

Had Madoff deluded himself into believing that his scheme could go on forever, he actually might have seen his victims as beneficiaries, psychoanalyst and Yale professor Dori Laub pointed out.

“It’s possible that what we’re dealing with is a man who’s essentially depressed and as a compensation begins to feel some omnipotence to fight the emptiness,” Laub said. “If you end up really being the messiah, you’ll be glorified.”

At the other end of the spectrum, some psychologists posited that unconscious hostility toward the Jewish community may have provoked him to choose his victims as he did. Noah Shaw, who has studied the psychology of money, said that he had worked with patients who generalized their hostile feelings toward their own family into antagonism directed at their ethnic community.

Stephen Rittenberg, a former director of treatment at the New York Psychoanalytic Institute who collaborated with Shaw on his research, had a similar assessment.

“If he were my patient I would try to address that aspect: Was there some kind of psychological hatred of his own family, his own community?” Rittenberg said.

But Shaw speculated as well that Madoff may have given his victims little thought at all and chose them simply because the Jewish community was the group most accessible to him.

“When people have feelings of inferiority or inadequacy, they need to beat the system, to outsmart the rules,” he said. “It works in an extremely temporary way. It’s the psychological mirror of a Ponzi scheme: If you don’t keep doing it, you collapse.”

Madoff’s motives are further obscured by the fact that there is something suicidal about the very structure of a Ponzi scheme, which has no way of working indefinitely.

“Maybe the ‘deal’ with Madoff is that on some deep level he’s not able to believe that the future exists,” said Rivka Galchen, author of this year’s novel “Atmospheric Disturbances” and a trained psychiatrist herself. “Otherwise he wouldn’t have been able to sleep at night for pretty much the majority of his professional life.”

Or maybe, like Willie Sutton and banks, Madoff robbed Jews because that’s where the money is.

In general, minority in-group morality as applied to business ethics rests on the assumption that most potential victims belong to the out-group. Gypsies, for example, tend to believe that driveway repair scams are morally okay because the great majority of the driveways in the world belong to non-Gypsies. But what if Gypsies got incredibly successful and ended up owning a sizable fraction of all the driveways in the world? Then they might wake up one morning to shocking headlines about how one Gypsy had scammed lots of other Gypsies out of billions.

Similarly, Bernie Madoff could set himself up as “the Jewish T-bill” (to quote the NY Times) with many of his customers trusting him with their money because they assumed he was delivering such stable returns by cheating (through front-running) the out-group of NASDAQ traders, not cheating (through a Ponzi scheme) the in-group of investors. After all, why would anybody try to cheat Jews, who, as we all know, are a tiny, beleaguered, discriminated-against minority … Except that they now own a remarkable fraction of the world’s financial assets, making them a prime target for scam artists.

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A reader suggests Bernie Madoff must have been running two scams, on and off: the famous Ponzi pyramid scheme, but also abusing his position as a “market-maker” to front-run (i.e., insert his buy and sell orders just in front of his customers’ orders in the direction that they are running.)

The idea that Madoff was flexibly switching back and forth among his scams makes a lot of sense. It’s hard to keep a Ponzi scheme going for years, and it’s hard to avoid being caught front-running because it’s such an obvious gag. So, you do a little front-running to get the Ponzi scheme going, turn it off before the SEC gets around to checking, turn it back on when you need to get through a tough stretch with your Ponzi scheme, etc. Further, having a well-known opportunity to front-run as a market maker serves as great advertising among your sophisticated investors who assume your too-good-to-be true returns coming from cheating outsiders, not from cheating the insiders.

Why confess only to the Ponzi scheme? Well, that probably helps limit the number of family members who go to prison.

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From (which is owned by the Washington Post):

Where Are the Jewish Gangsters of Yesteryear?
Or, what we can learn about “respectability” from Bernie Madoff and Meyer Lansky.
By Ron Rosenbaum
Posted Thursday, Dec. 18, 2008, at 7:14 PM ET

Four days before the Bernie Madoff bust, I found myself, through circumstances too complicated to explain, in a Bukharan Kosher restaurant in Queens, eating skewers of lamb, beef, liver, and sweetbreads with a wildly mixed group of guys that included a retired Jewish gangster I’ll call Lucky, since most of his rackets involved gambling of some type. Lucky had great stories to tell. He saw himself as the last of a dying breed—”I’m the caboose,” he kept saying—a breed that spawned legends like Meyer Lansky, Mickey Cohen, Bugsy Siegel, and Longy Zwillman. He was never a boss, more of an independent operator who specialized in running gambling rackets in South America, street lotteries in Africa, you name it. But it seemed he’d been on speaking terms with—and had stories to tell about—all the icons of the Jewish mafia. He was over 70 but looked like a tough 50 and wore a baseball cap advertising some fighter he was backing, and he fought like a wildman to pick up the tab for the table of eight from a thick roll of big-number bills.

Anyway, the more I read about Bernie Madoff, the more disgusted I am, not just with him but with the whole crowd of country-club suckers he allegedly conned, the phony “gentility” (in every respect) they represent.

It began to seem to me that the whole Bernie Madoff scandal was not about Jews and money but Jews and respectability. (And, by the way, let’s cut the crap about Jews and money in the first place. If you look at the history of America, the big money has always been made by criminals of non-Jewish persuasions. The non-Jews who committed genocide to steal the land in the first place. The non-Jews who built up big fortunes through the disgusting and murderous crime of slavery. The non-Jews who built “respectable” old-money fortunes on the broken backs of the wage slaves they exploited. As Balzac famously said, behind every great fortune is a great crime. Old money in America is for the most part just old crime well-varnished by time.)

Still, as I found myself more and more disgusted by the (alleged) crimes of Bernie Madoff, I kept thinking—in light of my encounter with Lucky—”Where are the Jewish gangsters of yesteryear?” These were people an ethnic group could be, well, if not exactly proud of, then certainly not entirely ashamed of. At least Meyer Lansky—or “Hyman Roth,” as they called him in the subtly anti-Semitic Godfather II—”always made money for his partners.” Bernie Madoff, if the charges are to be believed, always stole money from his partners. (It should be remembered that while the perp was a Jew, oh so many of his victims were, too.)

A great civilization, a great people, is always known by the most brilliant, talented, and learned among them: Einstein, Isaac Bashevis Singer, Leonard Bernstein. But it’s also known by the quality of its crooks. (Singer knew that.) And as Jewish crooks go, Bernie Madoff would be a sad step down.

What went wrong? If you ask me, the Bernie Madoff scandal was a tragedy of misguided upward mobility—not about Jews and money but about Jews and a sadly imitative notion of status.

Here’s the New York Post on Bernie and his alleged victims:

Working the so-called “Jewish circuit” of well-heeled Jews he met at country clubs on Long Island and in Palm Beach, and through his position on the boards of directors of several prominent Jewish institutions, he was entrusted with entire family fortunes.

“The guy was totally respected. …”

The key words here are country club and respected. This is a scandal that hinges on a false connection between country-club membership and “respectability.” Bernie seems to have preyed on those Jews who worship the false idol of WASP respectability. The sham gentility of country-club life.

Give me a break. Give me a gangster over a golfer any day.

A couple of caveats and a personal confession. First, I don’t want to over-romanticize—as some do—Jewish gangsters or gangsters in general. The incomparable Murray Kempton, the greatest writer to grace the pages of newspapers in the past century, had a line about this. Talking to be about the gangsters he knew—and he knew a lot of them (he was pen pals with Carmine “the Snake” Persico when the Snake was in the clink)—he noted that not all of them deserve the raffish, Guys and Dolls dignity they are so often endowed with. Here’s what Murray said:

People are very romantic about these guys, but the only thing I’ve ever learned is that if you talk to gangsters long enough you’ll find out they’re just as bad as respectable people.

Bada bing! Murray always found the site of contestation, the node of friction, in the way we construe our idols. I loved that inversion of our conventional definition of “respectability.”

On the other hand—second caveat—I don’t want to hear people, Jews or non-Jews, worrying that we can’t talk about Jewish financial crime without arousing cretinous anti-Semites. I think my credentials on this point have been established well enough by the 600-page book I edited on anti-Semitism, Those Who Forget the Past. Yes, Bernie’s a Jew, and he seems to have stolen a lot of money, but, as I’ve noted, stealing is not a genetically Jewish crime that Jews should be afraid to talk about. What’s worth talking about is how he got away with it. Which is where the fetish of “respectability” comes in.

Here, I’ll admit that one reason I want to talk about Jews and respectability is, in part, personal, familial. There were two sides to the family I grew up in. One, my mother’s side, the country-club side (some of them, anyway) made clear—in ways subtle and overt—that they looked down on my father, because he couldn’t afford—actually, better—wasn’t interested in joining country clubs, much less seeing them as symbols of status and—yes—respectability.

Now, I don’t think there’s anything wrong per se in Jews wanting to belong to country clubs. They deserve a nice place to feel like they belong and get their children tennis lessons. Sure, some Jewish country clubbers turn themselves into pathetic Ralph Lauren manqués. (Manqué manqués?) And it’s true the Jewish interest in country clubs probably derives from the “gentleman’s agreement” anti-Semitism that excluded Jews from WASP clubs, driving some of the more status-anxious to build bigger and better ones—when they weren’t lobbying shamelessly for admission to the very clubs that excluded most of their co-religionists. Nothing wrong with it, human nature across all ethnic groups, I suppose. Yet nothing to brag about either, in its philistinism.

And Bernie Madoff’s M.O., Bernie’s milieu, Bernie’s happy hunting ground was the country club. Bernie was the King of Clubs. If you read the reports in the Times and the WSJ, people paid hundreds of thousands of dollars just to join country clubs that would allow them to hobnob with Bernie and the friends of Bernie, sucking up to the second-raters who sit on country-club admissions boards just so they could spend a weekend with Bernie, in the hope he’d let them into his exclusive money club, his ultrarespectable club of clubs: Club Ponzi.

What an inversion, a perversion of true Jewish respectability to imitate the most dull-witted of their WASP brethren. I thought Jews were supposed to respect brains, not golf bags. Shows you how wrong stereotypes can be. Or maybe the wisdom of Abbie Hoffman’s aphorism: that Jews have to decide “whether to go for the money or to go for broke.”

Give me a Jewish gangster any day. They go for both.

Take Meyer Lansky, or rather “Hyman Roth,” Lee Strasberg’s version of Lansky in The Godfather 2. What is it we like about him? The TV dinner tray! He runs the world’s underground financial system, an illicit stock exchange and banking system combined, but what he likes most is the simple life at home in front of the tube with his wife. Sure, he’ll enjoy an evening from time to time at one of his luxe Cuban casinos, but country clubs? Please. You knew Meyer Lansky wouldn’t care whether he got into this or that Palm Beach Country Club, wouldn’t care about hobnobbing with the respectable—i.e., Wall Street-approved—gangsters.

For me, the big question about Bernie, if he’s guilty of all he’s been accused of, is whether he secretly despised the suckers who fell so easily for his “respectable” scams. Secretly enjoyed creating sham castles in the air for rich losers, thereby exposing their stupidity and the emptiness of their idea of respectability.

Could Bernie have seen though it all, been a kind of Buddha of bogusness, teaching the lame-os a lesson about how worthless their sham respectability was? Or did he buy into it himself? I’d like to believe the former, but I think it’s probably the latter.

It made me think of something Lucky mentioned in one of his stories about the old days: the controversy among the Jewish gangster alte kockers (old guys) about Mickey Cohen and the Irgun ship.

It seems Mickey Cohen (you know, the L.A. crime boss from the ’40s and ’50s; he appears in some James Ellroy novels) went around leaning on a lot of respectable and nonrespectable types for money for the Irgun, the Jewish-gangster-favored faction of Zionists in the perilous period of the founding of the state of Israel. It seems Mickey Cohen claimed he’d used the money to buy a ship and fill it full of guns and ammo for the Irgun to fight for survival of the embattled state, but alas—Mickey said—the ship had sunk on its way to Haifa or something.

There were always rumors, according to Lucky, that there never was a ship, that Mickey Cohen kept the money for himself—pulled a Bernie. Lucky didn’t believe it. Honor among thieves. There was a ship. He was sure.

I hope it’s true. I really think there is a difference between the disreputable but colorful and—in their own way—honorable Jewish gangsters and someone like Bernie. As that Jewish folksinger Zimmerman wrote, “When you live outside the law you must be honest.” A lesson about true respectability that Bernie seems never to have learned. A lesson the old time Jewish gangsters could teach us.

Ron Rosenbaum is the author of The Shakespeare Wars and Explaining Hitler.

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