Who was Bernie Madoff?

Julie Creswell and Landon Thomas Jr. at the New York Times attempted to answer that question. Here is an excerpt from the article:

So who was the real Bernie Madoff? And what could have driven him to choreograph a $50 billion Ponzi scheme, to which he is said to have confessed?

An easy answer is that Mr. Madoff was a charlatan of epic proportions, a greedy manipulator so hungry to accumulate wealth that he did not care whom he hurt to get what he wanted.

But some analysts say that a more complex and layered observation of his actions involves linking the world of white-collar finance to the world of serial criminals.

They wonder whether good old Bernie Madoff might have stolen simply for the fun of it, exploiting every relationship in his life for decades while studiously manipulating financial regulators.

“Some of the characteristics you see in psychopaths are lying, manipulation, the ability to deceive, feelings of grandiosity and callousness toward their victims,” says Gregg O. McCrary, a former special agent with the F.B.I. who spent years constructing criminal behavioral profiles.

Mr. McCrary cautions that he has never met Mr. Madoff, so he can’t make a diagnosis, but he says Mr. Madoff appears to share many of the destructive traits typically seen in a psychopath. That is why, he says, so many who came into contact with Mr. Madoff have been left reeling and in confusion about his motives.

“People like him become sort of like chameleons. They are very good at impression management,” Mr. McCrary says. “They manage the impression you receive of them. They know what people want, and they give it to them.”

As investigators plow through decades of documents, trying to decipher whether Mr. Madoff was engaged in anything other than an elaborate financial ruse, his friends remain dumbfounded — and feel deeply violated.

“He was a hero to us. The head of Nasdaq. We were proud of everything he had accomplished,” says Diana Goldberg, who once shared the 27-minute train ride with Mr. Madoff from their homes in Laurelton, Queens, to classes at Far Rockaway High School. “Now, the hero has vanished.”

If, in the end, Mr. Madoff is found to have been engaging in fraud for most of his career, then the hero never really existed. Authorities say Mr. Madoff himself has confessed that he was the author of a longstanding and wide-ranging financial charade. His lawyer, Ira Lee Sorkin, declined to comment.

During the decades that Mr. Madoff built his business, he cast himself as a crusader, protecting the interests of smaller investors and bent on changing the way securities trading was done on Wall Street. To that end, like a burglar who knows the patrol routes of the police and can listen in on their radio scanners, he also actively wooed regulators who monitored his business.

This seems to be the view that is coming out from the investigations into Bernie Madoff's scheme. In a nutshell, Madoff is a psychopath with a real sense of grandiosity and a well practiced ability to lie, a pleasure in deception, no sense of shame and no sense of regret at what he does to the people he manipulates and steals from.

That seems likely to me to be a set of personality traits that are well-rewarded on Wall Street, and similarly rewarded in politics.

For more information on who Bernie Madoff is and his history, here is a link to the Wikipedia article on Bernie Madoff. It contains an interesting technical description of his alleged investment strategy (it helps to know that ITM means In The Money, ATM means At The Money, and OTM meants Out of The Money. For good, brief explanation of those term, see this wikipedia article.)

It is now coming to light that Madoff probably used the strategy described in the wikipedia article, known as collar trades to bamboozle people who wondered how he was making his profits. It is not clear if he started using it and it failed, leading him to move into the ponzi scheme or he simply didn't use it except as a bamboozlement tool. In addition, he had a sophisticated marketing plan that targeted charitable foundations that are required to pay out 5% of their capital every year. By doing that he had a stable set of buyers who could not withdraw everything at once, and only had to offer that 5% return. This avoided the short term problems that normally cause a ponzi scheme to collapse quickly. Then he sold the investments through his country club connections in an affiliation swindle. The article also goes into how the so-called sophisticated investors and the regulatory agencies were bamboozled. For the latter, the general attitude of laissez faire deregulation that has been predominant both on Wall Street and in Washington helped a great deal.

It has been a Hell of a scheme conducted by a an immoral master schemer, and if the entire structure of unregulated banking on Wall Street had not collapsed, it probably would have continued until Madoff died.