“Certainly one of the most important things I learned is that numbers can be deceiving. There is a logic to mathematics, but there is also the underlying human element that must be considered. Numbers can’t lie, but the people who create those numbers can and do. As so many people have learned, forgetting to include human nature in an equation can be devastating.” - Harry Markopolos, No One Would Listen
The quote I used from Harry Markopolos’ No One Would Listen book about the Bernie Madoff ponzi scheme in my last article triggered a bittersweet recollection. For me, the experience captured the true nature of our warped financial markets, a culture glorifying wealthy arrogant criminal assholes, while ignoring or ridiculing honest, hard working, highly intelligent truth tellers.
The picture of Markopolos above shows an average looking middle aged guy, with a five o’clock shadow, bad haircut, and wearing a modestly priced suit and tie. Since reading about his fruitless effort to expose Madoff’s Ponzi Scheme and his fifteen minutes of fame in 2009, I have felt an affinity towards him. We both have a brother and sister. We were both brought up in Catholic households and went to Catholic schools. We both have degrees in finance. We have both had financial careers. We are both married with three sons. And we both believe facts and an accurate assessment of the numbers always reveals the truth.
Through his job as a portfolio manager with a small investment firm Bernie Madoff’s investing record was brought to his attention. As a numbers guy, he immediately began assessing the returns. Markopolos said he knew within five minutes Madoff’s numbers didn’t add up. It took him another four hours to mathematically prove that they could have only been obtained by fraud.
In 2000, 2001, and 2005, Markopolos alerted the SEC of the fraud, supplying supporting documents, but each time, the SEC ignored him or only gave his evidence a cursory investigation. The incompetence or willful ignorance of factual proof by these government drones ultimately resulted in the financial ruin of thousands to the tune of $18 billion and the suicides of a number of people, including Madoff’s son.
The culmination of Markopolos’ analysis was a twenty one page memorandum sent during November 2005 to SEC regulators, entitled “The World’s Largest Hedge Fund is a Fraud”. It outlined his unequivocal mathematical findings in more detail and invited officials to check his theories. He outlined 30 red flags proving Madoff’s returns could not possibly be legitimate.
His analysis was based on more than 14 years of Madoff return numbers. During that time, Madoff reported only four losing months – a statistically impossible scenario Markopolos said could only be achieved by fraud. He was ignored because he was a nobody in the view of SEC Wall Street wannabes.
The truth is the low IQ flunkies at the SEC had one goal in life – get high paying jobs on Wall Street with the firms they were supposed to regulate. Actually enforcing securities laws and holding bankers accountable for their criminal activities would limit their career advancement possibilities. Therefore, they pretend to regulate the financial industry and the financial industry pretends to obey the laws. The SEC apparatchiks Markopolos dealt with were nothing more than cheap whores looking for their chance at a sugar daddy Wall Street gig.
It wasn’t until markets began to freeze up in 2008 that Madoff’s ponzi empire of lies came crashing down and he came clean to his sons, who turned him in to the FBI. This was another example of Buffet’s witty quote, “You never know who’s swimming naked until the tide goes out”. Madoff’s ponzi never passed the smell test.
Executives at JP Morgan and numerous other Wall Street firms knew Madoff’s fund wasn’t above board, but being nothing but greedy immoral whores, they loved the millions in fees generated by all his fake trades, and pretended he was just a brilliant money manager who never had a down month. Just like our current ponzi financial markets, built on trillions of debt, all ponzi schemes ultimately collapse due to running our of suckers. It’s always a matter of time.
“Ponzi schemes exist in stable disequilibrium. This means that while they can’t ultimately succeed, they can persist indefinitely—until they don’t.” ― Harry Markopolos, No One Would Listen
The brief intersection of our lives occurred sometime in 2010 and captures the essence of how the world treats a real hero and average family man versus the how the world treats Wall Street villains and whores. My family was taking a day trip to NYC to do some sightseeing. My three boys ranged in ages between 11 and 17 and they were briefly experiencing the materialism whirlwind of NYC, with all its glitz and glitter.
After a hectic day, everyone was good with a relatively cheap meal at the Ruby Tuesday in Times Square. Middle class families don’t eat fig-stuffed quail and fluke ceviche at Gotham’s playpen of power in the Four Seasons with Dimon, Blankfein, and other masters of the universe.
We settled into our seats about to order some burgers and fries when I looked up from my menu and saw somebody I recognized a few tables away. It was Harry Markopolos eating dinner with a friend. I am absolutely sure I was the only person in the restaurant who recognized him. To this day he is a virtually unknown character to the world. I, on the other hand, have tremendous admiration for his heroic yet futile effort to reveal the truth regarding Madoff’s ponzi scheme. I wanted to go shake his hand and tell him he was a real hero, but didn’t want to interrupt his dinner.
I just sat there and pondered the irony of this noble honest truth telling hero dining at a chain restaurant while scum sucking Wall Street whores like Dick Fuld and Angelo Mozilo committed crimes which destroyed the global financial system and destroyed the lives of millions, but walked away with hundreds of millions in ill-gotten profits. They were surely drinking champagne and eating caviar, while Harry and his friend were pondering the 2 entrees for $20 special. This is considered justice in a crony capitalist society controlled by a small cabal of wealthy financiers and corporate goliaths.
“Remember when nurses, caregivers, teachers and students crashed the stock market, wiped out banks, took billions in bonuses and paid no tax? No, me neither.” – Fuad Alakbarov
The past couple weeks has been a never ending orgy of accolades for the Wall Street whores who “Saved the World” in 2008/2009. Watching Paulson, Bernanke and Geithner being bathed in glory by the dimwitted CNBC talking heads and bubble headed Bloomberg bimbos was beyond infuriating. Men like Harry Markopolos have been tossed into the waste bin of history as an asterisk, while arrogant assholes like Jamie Dimon are applauded, esteemed, and held on high as a potential presidential candidate in 2020. I guess when you run a criminal organization that has paid $45 billion in fines since 2009, that qualifies you for the highest office in the land.
This nine year Federal Reserve/Wall Street/Treasury-created “Everything Bubble” has driven the Wall Street CEO hubris-arrogance-meter off the charts. When a society idolizes and venerates psychopaths in suits like Dimon while disregarding and scorning good men like Markopolos, a reckoning is not far off. If I ever have the privilege of being in the presence of Harry again, I will shake his hand and tell him he is a hero to those of us who value the truth. I apologize to all hard working whores for lumping them in the same class as Dimon, Fuld, Mozilo, Blankfein and the rest of the Wall Street scum who continue to foul this earth with their mere presence.