By Daniel M. Ryan
Bernie Madoff has pled guilty, and he being immediately hustled off to jail brought a kind of closure. CNBC's Larry Kudlow has treated his conviction as an allegory for the crisis: we can finally put aside the one disaster, and the other shows signs of fading. As shock has turned into comprehension and assimilation, prime blame has fallen on the SEC for not putting a stop to Madoff's Ponzi scheme earlier. It's now well known that Harry Markopoulos tried to warn them several times but was brushed off.
A gigantic fraud such as Madoff's reveals a lot about America, and about the upper-crust subculture. As far as Bernie himself, he's been pegged as a sociopath; whether it's clinically accurate or not, it's accurate enough. Assuming he was something else is too baffling; more normal people who live a lie in that way crash and burn much sooner. Even if they're capable of the enormous effort that leaves the mirage still glistening, day in and year out, there's still a constricting passivity that the upkeep engenders. It's the kind of passivity that makes one wait for the inevitable unmasking.
In large part, that's because living a lie in that way is the result of some kind of terror, whether real or imaginary. In some ways, this age is less gullible than, say, the 1960s: portrayal of Madoff as a scared child inside might have flown forty years ago, but not now. At the time he said he had started the fraud, he was a middle-aged man who had held high office. It's almost inconceivable that a man with the gumption to start a securities firm in his early 20s would be liable to slip into fraud out of fear. It would take a lot of talent in the spin-doctoring department to make that line even sound plausible. Sociopaths, on the other hand, tend to be compliant when closely watched or under someone. They show their criminal inclinations when they "bust loose," or are no longer under the thumb that compels compliance. Madoff's 'career' path is more consistent with the latter than the former.
The way the victims have acted in public is revealing. Regardless of private grief, the public faces show a group of people that are doers at heart. None of the ones I saw on CNBC had much interest in haranguing or publicly berating Madoff; they were more focused on what they had to do now that the fraud was revealed. Their consensus that the SEC was largely to blame showed a doer's reflectiveness. Had the enforcement arm been more awake at the switch, the victims would have either lost a lot less money or none at all. Even in their suffering, they showed a certain pragmatism in the teeth of being defrauded.
Their reactions were not only quite American, they're characteristic of the American achiever class – of the American rich, I dare say. The real people in the upper income bracket are far removed from the classical leftist stereotype of "the rich." So far removed, in fact, that those stereotypes might have as homely an origin as the way rich people act when they stand up for themselves. Despite dreams of classless societies, many people put up with some kind of class hierarchy because a healthy one has people at the top doing what no-one else will (or can) do, and/or refraining from doing what everyone else merrily does. In American tradition, the doings are typically large-scale philanthropy.
As legal actions are pursued, blame is placed, monies are tracked down and books are written, the overriding questions will be hashed over: how did Madoff get away with it for so long? What made the SEC stay its hand? Was it a too-cozy relationship between the regulators and the regulatees, as has already been suggested? Was it the revolving door? Or was it a blind spot that many Americans share, one that's normally healthy?
I would argue the latter. The blind spot I'm referring to is an older variation on the too-big-to-fail doctrine: it's "too big to be crook."
The financial news frequently features stories of con men being brought to heel by the SEC. Pumpers and dumpers; manipulators; inside traders; yes, even Ponzi-scheme fraudsters. With the exception of inside traders, which are unique in this aspect, all of them are – well, sleazeballs. People of loose ethics, which are often on the periphery of the respectable. That kind of crook is usually caught and brought to heel.
But a crook in the centre of the action? A well-respected crook? Americans – not just regulators, but typical Americans – tend to assume that there's no such thing unless society's gone decadent.
That's because Americans know well one disreputable part of the human psyche: jealousy, and the spite it induces. With few exceptions, in exceptional times, the normal American ethos is to treat hostility to the successful as the product of mere, if pitiable, malice. Even in those exceptional times, the "crooks at the top" prejudice never seems to stick all that much.
The de-socialization of jealousy is one of the facets of America that makes America unique…one of the more noticeable ones. This custom has done America a lot of good; it's both protected and nurtured America's achiever culture. Had there not been the de-socialization of jealousy, it's unlikely that America would be the hyperpower that it is now.
Like all normally healthy customs, though, it has its blind spots. Bernie Madoff Ponzi'd (or Madoff'd) his way right through one of them.
There's likely to be some kind of crackdown and restrictiveness in the near future, in order to deter others from trying the same trick. It'll make for a doleful period, but one that's more sober and sobering. And preparative for a later return to normality.