Madoff Succeeded

Tis true in many circles. MANY circles.

Madoff succeeded.

No, he did not succeed in investing money the right way, the billions entrusted to him by hopeful investors everywhere. He did not succeed by being above the law and getting away with it. Yet he succeeded wildly in confirming many peoples' opinions about money managers: We're all crooks. The entire lot of us.

I was debating a close colleague the other day and he has seen the horrors of war (did a tour in Iraq and Afghanistan) and he usually has very well-researched, well-documented opinions on topics ranging from Greek civilization to power in current-day Middle East. He told me Madoff fascinated him. I asked him why. He (We will call him Davis) told me it was kind of like when he played his Uncle in chess one time. His Uncle check-mated him in two moves, but then would not play him ever again...He surely knew Davis would beat him and was a better player so he wanted to beat him once and then never play him again.

In essence, Davis relayed to me, Madoff did the same thing with regards to his competitors in the money management game. Davis told me that Madoff, well-versed in the investing world, knew there was not an investing panacea out there so he made up a fictitious 'world' that investors placed money in, and he 'procured' a track record, conservative with regards to yields so as not to arouse to much suspicion, but consistently profitable.

Davis claimed that EVERYTHING is a racket, a mere illusion---including the investing world.

I was not witty enough as it was bordering on 2:30 am when I got into this debate with Davis so I failed to bring up George Soros, the Quantum Fund Money Manager, who earned his clients 30%/year for over 2 decades, and becoming one of the wealthiest men in America within a relatively short time. Soros was an exemplar of the best performer, and there are others. Commodity Trading Advisors, hedge fund managers (not all of them lost money in 2008; some made out like bandits by betting on the crash), etc.

It's like sports...There are bench players, role players, stars, and superstars. And the roles oscillate oftentimes many times within one's career.

It disheartened me to think that a fellow American would disregard an entire line of work and lend credence to a greedy simpleton for creating a behemoth Ponzi scheme that defrauded investors of billions. It's really as simple as that. Al Pacino's character in Christopher Nolan's "Insomnia" states to the criminal psychopath, Robin Williams, when Williams goes on about how he himself as a beguiling, heartless criminal must fascinate the visibly haggard cop: "You're about as interesting to me as a blocked toilet is to a plumber." This is exactly how we should feel about Bernie Madoff. No Freudian psychoanalysis, no leather couch, no Proust or even Dr. Phil. This guy was just greedy. No more, no less.

An institution like money management has its fair share of charlatans because it is a direct conduit to and deals directly with that which some humans cannot behave normally: MONEY.

The only question I must ask of this colossal and abysmal failure of a man is "How much is enough?" How many houses can you have, how many country clubs can you play at, how much can you eat, how big can your bed be? It's almost unreal the amount of money earned on $50 billion year after year after year. It's tragic that people have to try to take short-cuts and not try to find the better way, and make mistakes and fall on one's face, and get back up again, and try again.

Didn't Edison fail like 1000 times before the light bulb actually worked? What ever happened to guys like him? Are our heroes now those with zeroes at the ends of their bank accounts, irrespective of how they earned them? What kind of a society puts up with a man like Madoff, with a regulatory body that seemingly looked the other way for YEARS, with myriad parties probably in cahoots with him, and with a wife who scrambles to grab up at least $15 million of the 'dirty money' for herself the days surrounding his arrest, and with a justice system that will probably put him away in a minimum-security prison for the remainder of his natural life?

What kind of America have we become?

People are killing themselves because of this man. Yes, Davis states, these investors perhaps were greedy by placing all their risk capital with a feeder fund or with his hedge fund. But is it their fault? Perhaps in part. Do they deserve what they got? Undeniably not.

Madoff is the man who wanted to take the easy way out. He took short-cuts and it caught up with him. He was already wealthy from his days as a Nasdaq Chair. He certainly didn't need the money nor would he have problems raising money from the luminaries of Hollywood, non-profit, feeder funds, etc. His pedigree spoke volumes.

Other avenues he could have taken:

1) Learn to trade.
2) Hire some quants who could trade.
3) Hire floor traders/CTAs/other money managers who could trade.
4) Get into a completely different business/side of the business altogether

I would think starting a Ponzi scheme would have been like Possibility Number 324 on the list...even for someone who has shady tendencies. Perhaps, as Davis intimated, the money management industry cannot be beat, that no one can beat the markets consistently. But what of Soros or guys like Dighton WorldWide Investments or Turtle Traders like Richard Dennis or solid Trend Followers like John Henry? Or is that just too much research for a guy like Madoff to do?

I run a Commodity brokerage and a Commodity Trading Advisor so I know how it feels to be on the inside and try to trade well and trade consistently. I have made some brilliant moves and even some ugly mistakes, but I do it with integrity and with utmost humility and I learn and I keep getting better each day...as we all should try to do. THAT is the American way. This business of starting a RACKET is beyond my comprehension, but I will not ascribe some brilliant attributes or an amazingly prescient mind in Madoff as he deconstructed the money management realm and decided it was a bunch of malarkey and he's gonna play ball not the right way, but his way.

Hedge funds are largely unregulated pools of capital. It is not like a CTA (Commodity Trading Advisor) or a mutual fund where the investments/trades are exchange-traded derivatives/shares. The speculative plays are often OTC (over-the-counter) derivatives and can literally be a speculative play on anything and in any market, black market or otherwise. It really is unreal how unregulated this game has become, but like with any game, there are the guys who play within the rules and guys like Madoff who are so egregious that they would make an intelligent person like my buddy, Davis (whom I still respect wholeheartedly, but simply bringing him up to help illustrate a point), think that the entire money management industry is a racket.

So wrong he would be, though. And when people go to the funerals of those who have offed themselves, they will probably feel very sick to their stomachs as they may be very well thinking the exact same thing. And in that way Madoff has succeeded.