Reply to Jansen’s comment on “Is the Madoff Scandal Paradigmatic?”

In asking Is the Madoff Scandal Paradigmatic? Kevin MacDonald and I put forward reasons for thinking so:

• Ample evidence pointing to the Madoff operation being fraudulent was brought to the attention of the SEC: the failure of that entity to take effective action can most plausibly be explained by fear of the lethal rage the Jewish Establishment was likely to show if an important member was attacked.
• Madoff’s success in raising so much money from so many places was largely a function of the efficiency of networking within the Jewish Community
• Raising and keeping the money was greatly facilitated by extraordinary — even irrational — reverence Madoff came to be accorded: conforming Rabbi/Guru cult pattern seen amongst Jews from the Rabbis of Eastern Europe to the Boas/Anthropology and Freud/Psychology academic circles amongst others.
• Economically the fraud was a huge net transfer of resources from non-Jews to Jews and within the group from less wealthy Jews to an elite.
• That Madoff was not turned in by the numerous Jewish financial sophisticates who had apparently figured out the fraud reflected the shadow cast by the “Mesirah” tradition prohibiting reporting wrong-doing Jews to the Civil Authority: a matter of great significance to non-Jews.

In his thoughtful response Mr. Jansen seems to concede our first point (“I will not argue against…”). From a public policy point of view, this is the most important matter. He ignores the “Guru” and “Mesirah” issues to focus on the distribution of benefits from the fraud.

He suggests that the main beneficiary was “the small Jewish retail investor who put his money to work with Madoff many decades ago.”

We certainly agree that the early small investors in Madoff actually did very well. We said

It is simply a fact that many people lived very well for many years from the proceeds of Madoff’s depredations.

This is not to suggest that they had the faintest idea their life styles were in any sense illegitimate and were rooted in fraud. Nor does it mitigate the appalling shock they went through in late 2008, discovering that their Guardian Angel had devoured them.

And of course we did not suggest all the Jewish elite benefited. But a few did, and enormously: the great bulk of the recoveries — some $10 billion —  actually has come from just three families, the Picowers, the Carl Shapiros and the heirs of Norman F. Levy. The former two paid massive civil forfeitures to the Feds, incontrovertible proof of wrongdoing. The facts seem to be that enormous sums, far beyond any contributions, were extracted from the Madoff operation by certain parties.

Several other cases — the Wilpons, the Chais heirs, and Ezra Merkin — may eventually provide more examples.

In contrast, the situation of David Becker, lately General Counsel of the SEC, was probably typical of the smaller accounts: he and his brothers split up a $2 million Madoff account inherited from their mother, of which the Trustee claims $1.5Mm was fictitious and should be returned.

Mr. Jansen takes the view that

The biggest moral losers were the elite Jewish individuals and organizations, who had recommended Madoff. These people lost much of their trust among both Jews and non-Jews.

and particularly

Madoff had a devastating impact on many Sephardic Jewish asset managers, especially in Switzerland…

Being in the business, he may be in a good position to judge this. But we were concerned with the effect of the Madoff scheme as an operating entity. While it was proceeding, all these people were doing extremely well from it.

Mr. Jansen also says, “non-Jewish investors are not likely to have suffered as large losses as initially thought.”

This seems to be true — but mainly because the proceeds of the fraud turned out to be so heavily concentrated in liquid form in the hands of a few. It may be that the Trustee’s shakedown suits aimed at the deep pockets of the Banks unfortunate enough to be involved will be productive. But the scale of the recoveries has no relevance to our analysis.

Jansen points out that others commit financial crimes, and implied that Jews do not commit them disproportionately to their very heavy involvement in financial matters.

The former is obviously true and the latter deserves some research. But we made no assertion about the propensity of Jews to commit these crimes (as, it is true, many others did).

Our point was mainly about ethnic networking — that the Madoff phenomenon, in the way it grew and in the way it was not stopped

illuminate(s) the economic and political prerogatives usurped in late 20th-century America by what can only be described as the new ruling class.

Subsequent events are confirming this — SEC Inspector General Kotz’s suppression of Senator Schumer’s role not least.