"Goodbye to a Good Old-Fashioned Conman"
by Bill Bonner
YOUGHAL, IRELAND – "A moment of silence, please. Poor Bernie Madoff died in prison this week. He had tried to be a good husband and father, and a good provider – to a wife who spent $57,000 per month on the company credit card. He was a prominent philanthropist in New York… and an important donor to Democratic Party candidates. He was convicted of defrauding investors in a “ponzi” scheme. At the time of his trial, he had taken in some $36 billion from investors, of which about half was “missing.” Half of his investors had made money from the scheme. The other half had lost it.
But after 11 years of lawsuits, the losers had managed to scrape back a further $14 billion, reducing the total loss to only $4 billion. If those numbers are right, investors got back 78% of their money. And here we offer a prediction: After the next blow-up, many investors will wish they had left their money with Madoff.
Simple Scam: There are scams and there are scams. Bernie Madoff’s flimflam was simple. He took money from investors. He gave them a good return – between 10% and 12% annually. Not too much and not too little. But paltry compared to today’s hot-shot gambles. (After all, since Madoff went to prison, the S&P 500 is up more than 400%. Tesla (TSLA) is up 184 times. Bitcoin has gone from 8 cents to over $60,000. If he’d only been able to hold on… and buy cryptos!) But investors were happy. Madoff was happy. His wife was happy. And it worked, as long as the money coming in was greater than the money going out.
Alas, in the downturn of 2008, the money stopped coming in. The scam was exposed. Madoff was not “investing” at all; he was just taking money in and paying it out, skimming off a bit for himself in passing. Compared to cryptos, SPACs, the FAANGs, NFTs, and federal monetary policies, Madoff’s flimflam seems reasonably harmless. Some investors would do well from it; others, not so well. And Madoff’s “take” (shared with employees and the luckier investors) was probably no more than the returns of a common hedge fund or SPAC.
Bigger Scam: Nor was the Madoff method particularly heinous. In fact, it differed from U.S. financial policy only in detail… and scale. The scale of the crime, of course, is much, much greater for the feds – with the sums counted in the trillions, not billions. And the losses – from manipulated interest rates, deficits, money-printing, political payoffs, and giveaways – will be thousands of times greater than those suffered by Madoff’s investors.
Like Madoff, the feds claim to be “investing.” But there is no real hope of any economic return from their boondoggle programs. And unlike Madoff, who kept investors’ money carefully in major banks, the government spends… consumes… and wastes the money in its custody. Were taxpayers to ask for their money back today, they wouldn’t get 78%; they’d get nothing. And, like Madoff, the scam will continue as long as the cash keeps flowing.
Real Scam: But the details are important, too; they put the feds’ crimes on a whole different level, and leave Madoff almost with a halo. Bernie Madoff was no saint. But he never forced anyone to give him money… never counterfeited money to pay his creditors, never tried to debase his clients’ money, and never falsified the whole financial world in order to keep his scam going. And he never caused a horrible inflation that will plague the whole nation, even innocent bystanders who never heard of him.
As you recall from yesterday, the team led by Treasury Secretary Janet Yellen ran a number of “models” and came to the conclusion that more money-printing would be no problem. They could add $1.9 trillion of new spending to combat the COVID-19 malaise, and another $2.3 trillion in infrastructure spending to give the patient a shot in the arm, and still have “manageable” levels of inflation.
If this infrastructure boondoggle is approved, it will bring the total stimmy spending – 2020 + 2021 – to more than $7 trillion, almost twice the total spending by the entire federal government in 2016.
These numbers would be alarming to any sane person. An honest man would be appalled. But imagine the envy and admiration in the heart of a conman! The feds force their marks to hand over as much money as they think they can get away with… And then, they print up more money – as much as they want – and give it out all over town. The press hails them as heroes. And their “models” show them they can keep it up almost indefinitely.
Regrets: At least Madoff had regrets: "I have left a legacy of shame, as some of my victims have pointed out, to my family and my grandchildren. This is something I will live in for the rest of my life. I’m sorry." Yes, Dear Reader… there are some things it’s hard to back away from – shame, for example. Or inflation. The models notwithstanding.
You may realize, at age 80, that you should have married that redhead from Indiana 50 years ago. But it is too late. You can’t back up. When you mix cement, you put the sand and the cement into a wheelbarrow. Then, when you add the water… the chemical process begins, whether you like it or not. There’s no point in having second thoughts. And when you pull the pin and release the grip on a hand grenade, you can’t change your mind. You better toss the thing or it will blow your foolish head off.
Once the grift was underway, it was almost impossible for Madoff to stop it – even if he wanted to. He needed to bring in new money to keep paying off the old money. And he needed it to afford the style of life to which his family had become accustomed. Likewise, as the feds feed the system with newly-printed fake money, more and more of the economy depends on it. More and more people want it.
Politicians who oppose money-printing and stimmy checks are quickly escorted from the building. Those remaining cannot cut spending. They cannot stop printing. They can’t put the pin back in the grenade… They can’t stop the bomb from blowing up.
RIP, Bernie: But that may be months… or even years… in the future. And by then, the noise and swirling debris will bury almost everyone in a cloud of forgetting… Fingers of blame will point in every direction – the rich… the Republicans… the white supremacists. But the culprits will probably get away.
In that sense, too, Bernie should be considered a paragon. He did his crime; he served his time. Bernie. We hardly knew ye. But yours was a good, old-fashioned scam. RIP."