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Bernie Madoff’s Ethno-Nepotistic Ponzi Scheme
James
Murray
January
4, 2008
Haaretz
has run an
article claiming that anti-Semites will jump on Madoff's $56 billion
fraud against Jewish investors to besmirch the good name of Jews. Some Jews have
proclaimed
Madoff's fraud to be a new Kristallnacht. The
Jewish Journal
connects
Madoff to the perpetrators of the Holocaust. Some Jews even insist that
"Christmas came early" for anti-Semites because of the collapse of the Madoff
scheme, implying that some Jews think that Christmas is a holiday of pure hatred
toward Jews. Perhaps.
However,
the demographics of the Madoff scheme deserve some ethnic analysis: Was this
really a story about how a Jewish turncoat victimizes Jewish-millionaire
Holocaust survivors, leading to gloating among anti-Semites at Christmastime? Or
… could it be that the dirty little secret of the Madoff scheme that Jews are
desperate to conceal is that Jews were not the victims but rather the
beneficiaries of the scheme?
First,
it is important to realize that Jews lost only a relatively small amount of the
money in Madoff's fraud scheme. As the New
York Times
shows,
those who invested early and withdrew profits — many of them presumably Jews —
did not lose a penny but rather profited rather grandly.
Second,
a quick glance at the table
in the December 17, 2008 Wall
Street Journal
(reproduced below) makes clear that of the top 30 investors in the fund, only 2
are Jewish, and relatively small investors at that. Granted, the list is
incomplete. It omits, for the sake of respect I suppose, the $37 million reportedly
lost by Elie Wiesel and his foundation (modestly named after himself).
(As an aside, it should be noted that Wiesel, the Holocaust promoter and Jewish
moralizer, is absolutely indifferent to the
extermination of the Palestinians.)
Although
many other versions of this table have appeared (and many major investors who
lost will try to keep their identity secret), it is worth noting that the
identifiable Jewish share of monies lost through Madoff in this compilation of
victims is precisely 2.31%. While this omits the Jewish petty-millionaires who
were the mainstay of Madoff's scheme for decades, even if there are 1000 Jewish
petty-millionaires, the Jewish share of the Ponzi scheme is surely less than 5%.
And since the best compilation so far argues for only 2.31% of the victims being
Jewish, are the crocodile tears of Jewish columnists for the Jewish
millionaire-victims really appropriate? One is reminded of the Jewish book on
the Katyn Forest Massacre, in which 20,000 Polish Catholics and a few identified Jews were slaughtered:
Of course, that
book, written by a Jew, focuses only on the few Jewish victims. The
non-Jewish victims are simply meaningless. Then and now.
There
are many articles about Jewish petty-millionaries who have lived on their
profits from Madoff for years or decades of retirement (10–20% a year in
payouts). (See here,
here,
and here.)
These articles make the structure of this Ponzi scheme immediately clear. That
there was something wrong was certainly clear to many investors; they just did
not know what was wrong. Anecdotally, many Jewish investors thought they were
buying into a long-lived insider trading
scam. Does the fact that some of Madoff's early Jewish investors always
believed that their "profits" were derived from financial crimes make them more
or less sympathetic?
Madoff
is described as having spent decades building a carefully structured Ponzi
scheme (which large European investors note was one of the American investments
highest rated for return and being risk-free for decades by the SEC and rating
services). Yet, Madoff's scheme was something else and something more: It was,
in fact an Ethno-Nepotistic-Ponzi scheme, a Ponzi scheme where most of the
payouts were to the investors of the same ethnicity as the
conspirators.
And
here is how it worked:
In
the first period (perhaps two decades), beginning in the 1960s, Madoff ran a
carefully structured Ponzi scheme, possibly beginning when he really could not
get the returns he thought he could get by legitimate means. But once started,
there was no turning back. Madoff's genius (linked to guaranteed super-safe
investment ratings from the rating agencies) was to have the larger investors
reinvest a lot of their imaginary "profits", while using their money to keep the
scheme going. Madoff carefully structured his scheme and limited the number of
investors. (He was notorious for refusing to accept all potential investors—many
relate how they begged him for years before he allowed them to invest; many
joined his country clubs just to stalk him. And I suspect he required a high
rate of reinvestment). Madoff was therefore able to meet the payouts he promised
since so much of the imaginary "profits" were simply reinvested and because
bigger non-Jewish investors were brought in to keep the scheme
going.
If
investors could be held to 1% a month payoffs (and this was a typical rate of
payoffs), it would take 8 years, 4 months before a given investor would use up
their own money in "profit" payouts. If Madoff could convince an investor to
take only 0.5% a month in payouts (or less: many Jewish charities appear to have
taken such lower rates of "profit" payouts), Madoff would have 16 years, 8
months before he would have to use someone else's money to maintain the stream
of "profit" payouts. These modest, if impossibly consistent returns,
differentiate Madoff from normal Ponzi schemes that pay out big early on but
crash and burn within a year or two. Madoff built his scheme to run for decades.
These long term horizons — on the order of a decade or so — required that Madoff
restructure his scheme periodically.
The
first decade or two saw Madoff operate real money-making securities services and
begin to collect his portfolio of million-dollar investors. At the beginning of
this period he built an innovative, heavily computerized and successful
financial services business. On top of this real and profitable business, he
slowly started building a portfolio of unsophisticated Jewish investors, many of
whom placed their life savings with him. These are the Jewish petty-millionaire
($1–3 million) investors everyone has been crying about in the newspapers. Many
of them drew substantial cash payoffs for decades — payouts that were often
multiples of what they invested.
Towards
the end of this period, Jewish-Zionist charities and Jewish-segregated schools
came into the system, but few were as large as $10 million, and all can be
presumed to have profited from Madoff's fraud. For example, Hadassah, the
Women's Zionist Organization, was one charity that came
in at this time: Its initial $7 million investment in 1988 would be
supplemented by $33 million over the next decade until 1998. By including paper
profits, Hadassah would ultimately claim to have lost $90 million with Madoff;
that is: 7 + 33 = 90.
It
is actually worse than this, since Hadassah may have actually lost nothing at
all. A quick and dirty
estimate of Hadassah "profits" suggests that if Hadassah had averaged $23.5
million in 1988–1998 and left all its "profits" with Madoff, there should have
been about $64 million in their account, not $40 million in 1998 as reported,
suggesting that Hadassah could have drawn as much as $24 million in "profits" in
the first decade. Similarly, if Hadassah had started 1998 with $40 million as
they report, 1% per month would yield $110 million, not $90 million as they
report now, suggesting that Hadassah withdrew as much as another $20 million in
the second decade with Madoff. Hadassah could have withdrawn as much as $44
million from the $40 million they invested with Madoff, and this would mean that
Hadassah's losses are not the $40 million actually invested, or the $90 million
as they now claim, but rather no more than zero.
(Incidentally,
some newspapers are so terrified of Jews that they will not even print the word
"Zionist" unless it is in the address of a letter to the editor from an
imperious Zionist organization: The cringing, terrorized Seattle
Post-Intelligencer
will only call Hadassah, which is officially "The Women's Zionist Organization of
America," "a Jewish women's charity.")
Interestingly,
Madoff was so immune from regulatory oversight that he would not even be
correctly registered as an investment firm until 2006, when SEC investigators
were credibly
informed that Madoff had committed numerous violations but settled for asking him to please,
please, please register his firm in an appropriate manner... after it had been
operating outside the law for over 40 years!!!! (Madoff would marry
off a daughter, Shana, to one of the investigators in that 2006
inquiry.)
The
second decade or so began with the need for investors at least in the $10
million range, since the costs of the scheme kept growing. By the end of the
decade he apparently needed investors in the $50 million range. This phase saw
the development of the "feeder" system, in which investment companies — often
Jewish-controlled — marketed Madoff's services to larger, non-Jewish investors,
worldwide. For example, in the mid-1990s, Jacob Ezra Merkin, from one of the
most distinguished rabbinical families in world Judaism, president of the Fifth
Avenue Synagogue in New York, head of the investment committee for the
UJA-Federation of New York, and manager of Ascot Partners, brought in Elie
Wiesel's Foundation for Humanity. Four of the five largest "losers" in the
Madoff scheme are feeder
operators who lost essentially nothing of their own: Fairfield Greenwich
Advisors, Tremont Capital Management, Ascot Partners, and Access International
Advisors brought in other investors and lost their money for them. The end of
this period came in 1999–2000: The result was that, as recently as 1999, Madoff
rejected an investment by Jeffrey R. Gural, chairman of Newmark Knight Frank
because he could not invest at least $20 million. By 1999, $20 million was too
trivial a sum to bother with at this point in Madoff's scheme. Madoff was
entering the third and final stage of his scheme, and it required globalization
and much, much larger investors.
The
last decade saw bigger and bigger investors, like European banks, Arab
institutional investors, a Korean pension, maybe a Saudi prince, etc., who put
in hundreds of millions or billions and got nothing at all back, or very little.
The costs of the scheme kept growing. This period was the heyday of the feeder
system: Fairfield Greenwich Advisors, Tremont Capital Management, Ascot
Partners, and Access International Advisors were bringing in billions now, and
almost none of it was from Jews. The investment by Abu Dhabi Investment
Authority, which placed $400 million with Madoff in 2005, is typical of the
third and final period. It was large, it was non-Jewish, it was used to pay
early Jewish investors, and was unusual only in the fact that Abu Dhabi
Investment Authority got cold feet and pulled out $268 million in redemptions in
2005 and 2006. Bank Medici of Austria became a sub-feeder collecting monies from
smaller investors in New York, Vienna, Gibraltar, Zurich and Milan, through its
hedge funds in the United States and Luxembourg: Its investors were happy with
7% a year.
And
the money still poured into the hands of Jewish "investors", including the Elie
Wiesel Foundation for Humanity, and the Jewish retired petty-millionaires of
Florida, New York, New Jersey, Connecticut, Minnesota, etc. Year after year,
they received their "profits", extracted from unknowing, duped investors from
Singapore to Dublin, from Spain to South Korea.
So,
it is clear that there were at least three categories of investors:
(1)
The core Jewish petty-millionaire investors, who made a lot of money for
decades, living richly on their "profits" from Madoff's fund. As the
New
York Times
admits,
many made a lot of money.
(2)
More recent Jewish charities who agreed to reinvest a lot of their "profits",
like Wiesel's loot from the Holocaust-trade: These investors got good payoffs
but reinvested most of it. These people could have lost a little, but if they
were really greedy they were easily suckered into big, consistent reinvestments,
accumulating only large imaginary paper "profits." In this cohort of investors,
actual loses are entirely correlated with excessive greed: If they let their
"profits" accumulate without payouts, they could have lost everything.
(3)
The non-Jews, like Banco Santander, HSBC Holdings PLC, Royal Bank of Scotland,
BNP Paribas, etc., who invested large amounts of money recently and who probably
got nothing or next to nothing from Madoff. These investors now know that all
their money disappeared into the hands of groups (1) and (2) and Madoff and his
buddies. (Incidentally, Madoff and his family made a lot of money: One family
investment firm alone had $160 million in assets until it was seized last
week.)
There
never was a group (4) because the market melted down and Madoff could not find
people big enough to fund the next generation of the scam. (Although he did
reportedly scam a Saudi Prince for $3 billion.) In fact, one finds Jeffrey
Tucker, a feeder partner in Fairfield Greenwich Group complaining,
in an article in HedgeWorld in
November 2007, that Chinese and Thai investors are stupid and unsophisticated
because they will not provide money to Madoff. When investors sought $7
billion in redemptions in November 2008, the end was near.
A
careful reader will note that there were real winners. We will call them the
Jews, since they were Jews, This group would ultimately have large losses of
imaginary paper "profits." And there were big losers. Let's call them the Goys
or the Suckers, since they are non-Jews. Of course, the difference between these
groups is their ethnicity. It is worth noting that the Wall
Street Journal and
the New
York Times,
and the mass media in general, see this as a fraud that essentially affected
only Jews. As we have seen, this is the exact opposite of the truth. Jews were
winners, and non-Jews were losers.
To
repeat: in Madoff's scheme, Jews were winners, and non-Jews were losers. It was
not just a Ponzi scheme, it was a Ponzi scheme structured around a massive
transfer of wealth to one's own ethnic group, a kind of previously undescribed
Ethno-Nepotistic-Ponzi scheme.
Finally,
this suggests that the real reason why Haaretz
and Abe Foxman are so hysterical about the Madoff scandal and its possible
effect of increasing anti-semitism is not because they fear irrational goyim who
are overly eager to paint all Jews with the traits of Bernie Madoff. It is that
there simply were very few real Jewish victims and quite a few non-Jewish
victims: The so-called Jewish victims actually made money. And they made
millions and millions and millions.
Permanent link: http://www.theoccidentalobserver.net/authors/Murray-Madoff.html
Appendix
1: Wall Street Journal List of Madoff's Victims.
[There
are many omissions from this Wall Street Journal list, like that of Elie
Wiesel's Holocaust profits foundation with $37 million in exposure. And the
Lapin foundation that was simply vaporized last week.]
*
Indicates Jewish investors.
Table
1: "Madoff's Victims: A List of Reported Victims and Their Exposure", in Wall
Street Journal, December 17, 2008. p. A14.
(Victims
For Whom No Exposure Amount Is Available Are Not Shown.)
Fairfield
Greenwich Advisors (investment management firm): $7500 million.
Tremont
Capital Management (fund of funds run by Tremont Group Holdings): $3300
million.
Banco
Santander SA (Spanish bank): $2870 million.
Ascot
Partners (hedge fund frounded by GMAC chief J. Ezra Merkin): $1800
million.
Access
International Advisors (New York investment firm): $1400 million.
Fortis
Bank Nederland NV (Dutch bank): $1350 million.
Union
Bancaire Privee (Swiss bank): $1000 million.
HSBC
Holdings PLC (British bank): $1000 million.
Natixis
SA (French investment bank): $560 million.
*Carl
Shapiro (former chairman Kay Windsor Inc.): $550 million.
Royal
Bank of Scotland (British Bank): $492.76 million.
BNP
Paribas (French Bank): $431.17 million.
BBVA
(Spanish bank): $369,57 million.
Man
Group PLC (British hedge fund): $360 million.
Reichmuth
& Co. (Swiss private bank): $327 million.
Nomura
Holdings Ltd. (Japanese brokerage house): $303 million.
Maxam
Capital Management Inc. (fund of funds based in Dairen, Conn.): $280
million.
EIM
SA (European investment manager with $11 billion in assets): $230
million.
Aozora
Bank Ltd. (Japan bank in which Cerebus Capital owns majority stake): $137
million.
AXA
(French insurer): $123 million.
UniCredit
SA (Italian bank): $92.39 million.
Nordea
Bank AB (Swedish bank): $59.13 million.
Hyposwiss
(Swiss private bank owned by St. Galler Kantonalbank): $50 million.
Banque
Bendict Hoetsch & Cie SA (Swiss private bank): $48.8 million.
City
of Fairfield-Connecticut (town pension fund): $42 million.
Bramdean
Alternatives (asset manager): $31.2 million.
*Haredi
Insurance Investments & Financial Services Ltd. (Israeli insurer): $14.2
million.
Societe
Generale (French bank): $12.32 million.
Groupama
SA (French insurer): $12.32 million.
Credit
Agricola SA (French bank): $12.32 million.
Richard
Spring (individual investor): $11 million.
RAB
Capital (hedge fund): $10 million.
Banco
Populare (Italian bank): $9.86 million.
Korea
Teachers Pension (Korean pension fund): $9.1 million.
*Jewish
Community Foundation of Los Angeles (Jewish charity manager): $6.4
million.
Neue
Privat Bank (Swiss bank): $5 million.
*Clal
Insurance Enterprise Holdings Ltd. (Israeli financial services): $3.1
million.
Mediobanca
SpA (via its unit Compagnie Monegasque de Banque):
$671000.
Permanent link: http://www.theoccidentalobserver.net/authors/Murray-Madoff.html
