Tonight's post involves some sleight of hand. If you've ever watch a shell game or 3 card monty, you know that being told you're going to be tricked doesn't help at all. You're still the shill and you always pick the wrong shell.
So I'll explain the trick quickly. Tonight, I will give you a brief introduction to the topic and hopefully, arouse your curiosity. The rest of the trick will wait until tomorrow. Here goes.
Bernie Madoff was something different altogether. The level of his deceit was so pathological that it seems almost an accident that it occurred at the same time as the financial crisis. Of course, to quote Warren Buffett, "You don't know who's swimming naked until the tide goes out". And Bernie certainly was naked - a con man through and through. He defrauded and bankrupted hundreds of those least able to pay; elderly couples, charities, even Elie Wiesel. Horrible.
But here's where it gets weird. When Madoff's scam was wound down, the largest beneficiary was discovered to be an accountant named Jeffry Picower. He had earned annual returns of between 120% and 950% over the years. Being an accountant (and lawyer), it's clear that he operated an effective shell game, deftly moving funds around various legal entities. When the Madoff judgement came down, Picower settled claims against him for $7.2 Billion. That's an accountant who hasn't been charging by the hour.
But before suffering a massive heart attack and drowning in his Olympic size pool, he and his wife left MIT a $50M gift which created the Picower Center for Learning and Memory . It is a world class operation, with 35 elite scientists studying the brain and seeking cures for Alzheimers. They are doing noble work that will save lives. And the Center has kept his name. (Still know which shell the ball is under?)
I wrote a piece on the Future of Money in October's MEDIA magazine. I'd like to leave you with a cliff-hanger quote from it and hope that in the comments, you'll discuss the differences between legal and illegal gambling and financial markets. What rules matter most? How about government versus organized crime?
Money emerged as a method for recording a promise to pay and was the first medium to communicate trust. As early as the 2nd Millennium BCE., Mesopotamian clay tablets recorded debts redeemable for grain. Encoded in such transactions was trust and belief in the fact that the promise of payment in grain would be upheld. In fact, the word “credit” comes from the Latin word “credo”, or literally “I believe”. (Media Magazine, October 2011)
I began yesterday regarding judgements of right and wrong or legality regarding gambling. Gambling history, specifically in Vegas, is interesting. In the beginning, gangs and organized crimes ran the daily lottery in New York - the "numbers". Then Vegas was developed, financed by the Mafia. When it became more successful, the Mormons provided much of the funding. By the 1970's, the Teamsters were underwriting much of Vegas' development. Finally, the industry and the city acheived the most American of coronations and blessings. They went Public, legitimized by Wall Street.
I'll begin tomorrow discussing the image below. It's a Lottery Ticket, issued to by the Continental Congress in 1776. The country was raising money to fight the Revolutionary War against Britain. The buyer was individually taking a chance on the future. He purchased the chance to individually win a bauble, and all together, the colonists raised the capital to win Liberty. A Ponzi scheme or the basis of a nation? Both.