[Marxism] "It's Kristallnacht Two!"

[David Thorstad]

  http://www.counterpunch.org/


  /*CounterPunch Diary*/


  *"It's Kristallnacht Two!" An Ethnic Cleansing in America*

By ALEXANDER COCKBURN

Call any Jewish friend across the few days and the degrees of separation 
from someone financially devastated by Bernie Madoff are often only one 
or two. One rich Jewish friend in New York volunteers that because of 
some intricate family dispute his own money hadn't been parked at 
Bernard L. Madoff Investment Securities LLC. On the other hand his uncle 
had woken up the morning after Madoff's arrest to discover that the $40 
million he'd entrusted to Bernie was gone forever, along with the 
multi-million pension fund of his workforce, which he'd also entrusted 
to Madoff.

It's not just ruined heiresses in the Palm Beach Country Club now faced 
with the prospect of dividing the contents of the Whiskas can into two 
equal portions for mistress and cat, it's academics on Ivy League 
campuses, doctors in Santa Monica, rich people from Boston to San 
Francisco to the West Side of Los Angeles finding their retirement nest 
eggs or charitable trusts wiped out overnight.

In terms of financial and psychological impact, Bernard Maddow's $50 
billion heist certainly ranks as a major ethnic cleansing here in 
America, a hugely traumatic event for American Jewry. Of course Madoff 
had clients of every creed and nation, but he made a specialty of 
trolling for Jewish money.  I asked a Jewish woman I know here in 
California if any in her circle had taken a hit. She looked at me 
tremulously, shaking her head, on the edge of tears. Though no one was 
in immediate earshot, she whispered, "They kept telling me to put my 
money with Madoff. At that time the entry level was $250,000. I dodged 
the bullet. Some of my friends didn't. They've lost everything. This is 
Kristallnacht Two."  Her fear and horror would scarcely have been 
diminished if she'd heard what a perfectly nice young person had 
remarked to me earlier, apropos the Madoff affair: "Now the rich people 
will know what it's like."

"'It's an atomic bomb in the world of Jewish philanthropy,'  Mark 
Charendoff, president of the Jewish Funders Network, told Anthony Weiss 
and Gabrielle Birkner of The Forward newspaper. 'There's going to be 
fallout from this for years to come.' The collapse of the investment 
firm of Bernard Madoff has opened a black hole at the center of the 
tight knit circles of wealthy Jews who socialize and do business 
together, and who, year after year, support Jewish causes… "

Among those apparently taking serious and even financially fatal hits: 
Yeshiva University in New York; Senator Frank Lautenberg, New York Mets 
owner Fred Wilpon, real estate and media mogul Mortimer Zuckerman 
("significantly hurt"), GMAC Financial Services chairman J. Ezra Merkin 
(who ran a hedge fund, Ascot Partners, which reinvested many charities' 
funds with Madoff), the Elie Wiesel Foundation for Humanity, Steven 
Spielberg's Wunderkinder Foundation, Jeff Katzenberg, the Boston-based 
Robert I. Lappin Charitable Foundation (which has closed its doors), 
Eliot Spitzer's family, the Chais Family Foundation, the Carl and Ruth 
Shapiro Foundation, Hadassah (the Women's Zionist Organization of 
America), the United Jewish Endowment Fund of the Jewish Federation of 
Greater Washington , the Los Angeles' Jewish Community Foundation's $238 
million Common Investment Pool, the American Jewish Congress, the 
Technion-Israel Institute of Technology.

It's a savage body blow to the commercial real estate market in New 
York. Christine Haughney in Friday's New York Times quotes Robert J. 
Ivanhoe, a lawyer who is representing 10 developers and investors who 
lost $5 million to $50 million each, as saying "The level of 
devastation, both financial and on a human  level, is astounding," 
Haughney cites a Manhattan psychotherapist who counsels real estate 
leaders and bankers as saying "most of the patients he has seen this 
week have close friends and relatives who lost money with Mr. Madoff. 
The victims include executives at the global commercial brokerage CB 
Richard Ellis, most prominently Stephen Siegel, a major Bronx landlord 
who is chairman of worldwide operations at the brokerage."

A huge problem is that many developers were using their investments with 
Madoff as collateral on projects and now banks are saying, "Show us the 
money."  Residential real estate will take a hit too as people back out 
of purchases because they've lost their money , or abandon coops because 
they can longer afford the annual fees and mortgage payments.

Pam Martens, CounterPuncher and former Wall St stockbroker, points out 
to me that "Yes, in the early years Madoff and his brother, Peter, 
worked the Jewish country clubs and got referrals from referrals.  But 
as he ran into trouble with redemptions and needed ever larger pools of 
new money, he turned to funds of funds (hedge funds that raise money and 
then dole it out to various hedge fund money managers).  That meant 
that Madoff really didn't know who the ultimate individual investors 
were.  That also means that a lot of these people don't yet know they're 
victims because they were never told by their fund of funds that their 
money went to Madoff.  (He would not let his name be given out by the 
fund of funds; obviously so the SEC couldn't figure out how much money 
he was really taking in.) So expect to hear a lot more big names being 
announced as victims over the next few weeks."

"People are horrified. They are frightened of being exposed. They don't 
know how to go on," said a Boston-area psychologist, cited in an 
interesting story by Svea Herbst of Reuters: "Many duped investors have 
been left with a sense of betrayal so strong that it will cause severe 
psychological scars, said Dr. James Grubman, a psychologist who counsels 
wealthy families in the Boston area struggling with the emotional issues 
of having money. "He gave his investors a lot of intangibles. He allowed 
people to feel they were part of an exclusive club, part of the 'in 
crowd' and ultimately deemed worthy of investing with him."

How did Madoff, despite widespread suspicions across many years, 
continue to allure so many investors, smart fellows like Steven 
Spielberg well equipped with expert number crunchers? The most gullible 
dupes of all are those who preen themselves as being privileged 
accomplices in a profitable conspiracy, at scant risk to themselves. 
Part of Madoff's genius as a swindler was that he turned many away. As 
my father, Claud,  used to joke to me, "Alexander, people talk about 
'falling into the clutches of money lenders. I had to force my way in." 
Madoff would turn down applicants unless they could put up millions, and 
that of course vastly increased the zeal of the suckers  to be on a good 
thing, to join the exclusive club.

Of course many of them thought Madoff's famous model was dubious. After 
all, how could the laws of financial gravity be defied, year after year, 
producing  an unending yield (for the fortunate) of 10 to 12 per cent 
annual returns on capital invested.  But the thought came with a knowing 
wink, that Bernie was scoring these huge returns, by being in the know, 
running on the inside track, using insider knowledge. As my father 
pointed out to me many times, many people have a bit of larceny in their 
bloodstream, and it's what con men trade on, as Gogol imperishably 
described in Dead Souls.

CounterPuncher Pam Martens, who will be writing about the affair here in 
a few days, was on to Madoff back in 1991, as Susan Antilla described in 
a column on Bloomberg. Martens was "taking over management of a 
customer's municipal-bond portfolio, but was alarmed when she heard how 
the man had invested the rest of his nest egg.

"He told me that the bulk of his money was with Bernie Madoff, and that 
Madoff guarantees a 13 percent a year return.  I said, "First of all, 
that's impossible, and second of all, that's illegal.'"  Martens got 
copies of the man's brokerage statements and phoned Madoff.  "I said, 
'I'm looking at Mr. X's statements, and it's clear you're not doing 
anything here that generated 13 percent a year,' He said, 'No one has 
ever dared question what I'm doing.'"

In the years that followed, there were those who did question. Some of 
them pressed their suspicions upon bodies like the SEC, stating 
emphatically their view that Madoff was running a Ponzi game.  Madoff 
sailed through the charges for a variety of reasons. First, he posed as 
a regulator and due diligence watchdog himself. The SEC thought he was 
one of their own. Then again, he had heavy duty social and financial 
connections and heavy duty political protection. Here's where there 
should be a lot more investigation. Madoff poured money into the 
Democratic  Senatorial  Campaign war chest  ($100,000 between 2005 and 
2008)and made large contributions to important Democrats on the Finance 
Committees, like Rep Henry Waxman  and Senator Charles Schumer.  Waxman 
and Schumer have hastily announced they're donating this money to 
charity. (Who knows? Maybe the donations have gone to the next Ponzi 
racket down the food chain so it'll come back to them again as 
protection money.)

The carnage will go on for years. As Dean Rotbart points out in The 
Jewish Journal:

    "A phalanx of plaintiffs attorneys are trolling this very moment for
    clients who are certain to mount a legal assault on charities,
    universities and other non-profits in a bid to force them to
    disgorge past donations whose origins can be linked back to the
    Madoff scheme.

    "At the very least, large numbers of individuals and institutions
    who today consider themselves to be victims of the Madoff scandal
    should brace for forthcoming legal actions that will allege their
    remaining wealth is not theirs at all – rather, it is the
    recoverable property of other claimants who were bilked by Madoff.

    To keep their libraries, laboratories, scholarship programs,
    hospital services, meal programs and the like, universities and
    other non-profits who continue to operate in the wake of the Madoff
    scandal will also almost certainly have to retain law firms to
    combat efforts to strip those non-profits of past Madoff-related
    donations – whether directly from Madoff or indirectly from Madoff
    investors."

Maybe not. Since a ot of Madoff-derived money went to Israel, I think 
perhaps we will soon see Congress rush through  legislation to limit the 
liability of Madoff recipient non-profits, with President Obama , whose 
campagn contributions surely included Madoff  money too, only to happy 
to sign on the dotted line.

On the larger canvas, what exactly separates Madoff's operation from 
those of the banks rewarded for their shady follies by a $700 billion 
bailout? Just like Madoff, the banks finally had to admit that all their 
public financial statements were false, that the supposed assets were 
worthless.

The operating assumption of the Ponzi scheme is that the tide will 
always rise, that old investors can be repaid by the infusions ponied up 
by the fresh recruits. For the past twenty years the entire American 
economy has become—to quote Bernie's succinct résumé of his business to 
his sons —"a giant Ponzi scheme,".

Uncle Sam is the biggest Ponzi operator of all, with the added magical 
power denied Madoff (unless forgery was among his talents) of being able 
to print money at will. CounterPunch tip of the week. Wheelbarrow 
stocks. Buy 'em while the price is right. Soon Americans will  be 
needing wheelbarrows to put the money in to go shopping. A vast new 
wheelbarrow industry could be part of Obama's recovery plan. Collapsible 
wheelbarrows for the soccer moms to get in the back of the Volvo.  
Electric-powered wheelbarrows. Hybrid wheelbarrows from GM. Gold-plated 
wheelbarrows from the Defense sector.

This was no one-man operation, run after hours by Madoff with a secret 
ledger.  No one person can single-handedly run a $50 billion business, 
even one with cooked books.  This was a family business. Every decade 
has its signature swindles capturing the zeitgeist, and we remember them 
fondly – from Clifford Irving's homage to Howard Hughes, the Hitler 
Diaries, Keating. Madoff is in the pantheon now. Though the legal 
obstacles will be formidable, I hope Spielberg, one of those stung by 
Madoff, gets around to making a movie about him. The Jewish Journal has 
even comes up with a title for him, Swindler's List.


    *Alexander Cockburn* can be reached atalexandercockburn at asis.com
    <mailto:alexandercockburn at asis.com>

 


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