Tuesday, January 27, 2009

Bernie Madoff, White Collar Crime, and the Economic Recession

Want to know why differentiating between white-collar crime and street crime is so dangerous? Because fundamentally, there is no difference in the mentality of the criminal. None. But the costs of white-collar crime, as we're seeing, are off the scale.

The Talented Mr. Madoff:

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?

“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.

“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.”
Of course, impression management and presentation of self goes right back to the work of Erving Goffman and other symbolic interactionists. The ability to control the impression others have of you, including keeping those who might expose you even closer, is the hallmark of most narcissists and criminals who engage in criminal enterprise, be it Ponzi schemes or homicide.

Mr. Madoff’s confidence reminds J. Reid Meloy, a forensic psychologist, of criminals he has studied.

“Typically, people with psychopathic personalities don’t fear getting caught,” explains Dr. Meloy, author of a 1988 textbook, “The Psychopathic Mind.” “They tend to be very narcissistic with a strong sense of entitlement.”

All of which has led some forensic psychologists to see some similarities between him and serial killers like Ted Bundy. They say that whereas Mr. Bundy murdered people, Mr. Madoff murdered wallets, bank accounts and people’s sense of financial trust and security.

Like Mr. Bundy, Mr. Madoff used a sharp mind and an affable demeanor to create a persona that didn’t exist, according to this view, and lulled his victims into a false sense of security. And when publicly accused, he seemed to show no remorse.
As the article notes, Madoff's only "apology" so far has been to his Park Avenue penthouse neighbors who might be "inconvenienced" by his presence while he awaits trial under "house arrest."

Now when students ask for examples of disparate treatment based on crime and wealth, I point to this: Madoff allegedly fleeces investors out of $50 billion (with a "b") and gets to remain under "house arrest" in his Park Avenue apartment. If you stole $50 dollars (with a "d") from the Quick Mart, you'd be playing drop the soap in your local jail facility.

To some extent, analysts of criminal behavior say, defining Mr. Madoff is complicated by the wide variety of possible explanations for his scheme: a desire to accumulate vast wealth, a need to dominate others and a need to prove that he was smarter than everyone else. That was shown, they say, in an ability to dupe investors and regulators for years.

Like the former F.B.I. agent Mr. McCrary, Dr. Meloy cautions that he has not met Mr. Madoff and can’t make a clinical diagnosis. Nevertheless, he says individuals with psychopathic personalities tend to strongly believe that they’re special.

“They believe ‘I’m above the law,’ and they believe they cannot be caught,” Mr. Meloy says. “But the Achilles’ heel of the psychopath is his sense of impunity. That is, eventually, what will bring him down.”

He says it makes complete sense that Mr. Madoff would have courted regulators, even if he ran the risk of exposing his own actions by doing so.

“In a scheme like this, it’s very important to keep those who could threaten you very close to you,” Dr. Meloy explains. “You want to develop them as allies and shape how they go about their business and their attitudes toward you.”
This will probably be the most egregious part of the story. Ponzi schemes are as old as Chuck Ponzi himself, going back at least a hundred years, so the question, how did the guy get away with it (allegedly) for that many years, means the SEC was either asleep at the switch or snowed by the guy.

Current and former S.E.C. regulators have come under fire, accused of failing to adequately supervise Mr. Madoff and being too cozy with him.

Arthur Levitt Jr., who served as S.E.C. chairman from 1993 to early 2001, has acknowledged that he occasionally turned to Mr. Madoff for advice about how the market functioned. But Mr. Levitt strongly denies that Mr. Madoff had undue influence at the S.E.C. or that the agency’s enforcement staff deferred to him.
I have a feeling this case will end up embodying the entire story of Wall Street, corporate malfeasance and the ongoing economic recession. Starting with the subprime mortgage scams, to "house flipping," to the "credit default swap" schemes, this entire recession and ensuing economic hurricane which is wiping out millions of jobs, homes and lives, lies squarely at the feet of characters like Madoff and the "blind eye" we give to white-collar crime in this society.

In fact, if I have to read one more Big Media columnist opine that this recession is something "we deserve" because of our "debt-ridden national binge of greed and irresponsibility" culture, I'm likely to vomit. No doubt some people in the lower and middle economic strata were living such lives, but this economic catastrophe we're in the middle of is the direct result of white-collar crime, carried out in the most upper echelons of the economy, by a class of sociopaths.

And as usual in these kinds of "economic corrections," it's the middle and working class folks, people who paid their mortgages and lived within their means, who end up getting sodomized by the brutal end of this cold-bath recession.

The article on Madoff was right: Ted Bundy and Jeffrey Dahmer would no doubt be proud.

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