Alice Shroeder: Madoff May Have Been The Most Efficient Thief In History

Interesting writing from Alice Shroeder again.

• Madoff’s $200,000-an-Hour Beats Tiger Woods: Alice Schroeder
  
  March 27 (Bloomberg) -- “To the best of my recollection,” Bernard Madoff told the judge in his guilty plea on March 11, “my fraud began in the early 1990s.”
  
  He seemed detached, as if reading a statement about a stranger. Maybe that’s why his recollection was wrong.
  
  Prosecutors say Madoff was Ponzifying since the early 1980s, even the 1970s. By various estimates, Madoff netted $10 billion to $20 billion (the $65 billion cited in the guilty plea is adjusted for past distributions to clients). Yet the mind goes numb trying to grasp what the billions signify in these days of multitrillion-dollar bailouts and shareholder losses from Citigroup Inc.’s collapse into a penny stock.
  
  Let’s measure the numbers on a human scale. Even estimating conservatively, Madoff stole more than $1.6 million every workday of his criminal career. Based on my calculations, Madoff’s bilking rate topped $200,000 an hour, or almost 60 bucks a second. He may have been the most efficient thief in history.
  
  Compare that with the most expensive lawyer in the U.S., who, as of January billed at $1,260 an hour.
  
  Even Tiger Woods, the world’s priciest athlete, is a piker by comparison, earning in recent years about $60,000 an hour, based on 40-hour weeks. And Woods is no slacker, whereas Madoff was ripping off his clients while he did nothing.
  
  Money Is Gone
  
  True, concealing his sloth took bureaucratic skills and ingenuity. Keeping a straight face at the country club for decades while cheating his closest friends was an accomplishment in its own right. That no one knows what happened to most of his stash is beside the point. As far as his hapless victims are concerned, the money’s gone.
  
  Some are questioning whether it is fair to describe those swindled by Madoff as victims, saying that, in their naivety and blind ignorance, they failed to take precautions against fraud. But that only makes them all the more victimized. How much more vicious it is to prey on the clueless than on those who are equipped to defend themselves.
  
  In this cautionary fairy tale, Madoff’s unfortunate clients were the Hansels and Gretels of finance, enticed by the witch who lives inside a house covered with candy and sugarplums. Unlike Hansel and Gretel, though, they didn’t get out whole.
  
  One of the most persistent questions about Madoff has been why his clients weren’t more suspicious of why he managed their money outside the usual fee structure of a hedge fund. They should have been wary because his setup made him seem altruistic, as if he were passing on the chance to bilk them.
  
  Lower Fees
  
  He could have promised investors the same stable, low-risk, above-market returns from a multistrategy hedge fund, offering a little kicker: lower fees than a fund-of-funds.
  
  Ideally, he would have named this vehicle something more creative than Bernard L. Madoff Investment Securities LLC. Something appropriate, following the example of Amaranth Advisors LLC, the collapsed hedge fund (named after the herb also known as pigweed). Then, just lever that baby up to maximum size, rake in the fees and boom, done.
  
  True, as a real hedge-fund manager, Madoff would have had to invest his clients’ money. But having done so -- even with complete ineptitude -- think how smug he could feel after it all blew up, knowing that careful drafting of the offering document by his $1,260-an-hour lawyer had boilerplated the risk, thus keeping him out of prison.
  
  $5 Billion
  
  If only Madoff, 70, could work as a hedge-fund manager now. Under court-ordered supervision at his former $200,000-an-hour bilking rate over his actuarial life expectancy of 12.7 years, he could easily take more than $5 billion from the pockets of the rich, and give it to his formerly rich clients in partial recompense.
  
  Too bad, the era of 2-and-20-plus-expenses is over. The best we can do is find a more psychically satisfying punishment than watching Madoff rot in a prison cell or pick up trash along the highway.
  
  For his remaining 4,635 allotted days, therefore, I sentence Bernard Madoff as follows:
  
  He will work as a janitor at Yeshiva University and change bedpans at the North Shore-Long Island Jewish Health System hospitals. He will donate his bone marrow to the Gift of Life Foundation. He will swallow all the abuse his celebrity clients care to dish out, including slaps in the face from Zsa Zsa Gabor. He will work his little leg irons off doing whatever scut duties required of him. It’s the least he can do.
  
  So far, Madoff doesn’t seem to share any of the sorrow, remorse and shame exhibited by his prey. Maybe a stint on a window-cleaning platform will wring a little guilt out of his cold, hard, sociopathic heart. About once a month, he will spend a few hours washing windows on the 17th floor of the Lipstick Building. There, he can look inside at his former office, where he spun the sugar that enticed his investors into the trap.
  
  We should have no qualms about sending Bernard Madoff 17 stories up. Unlike his clients, it’s a safe bet he won’t jump.

ps: if you enjoy this piece, check out older postings.

• Interview On CNN: Alice Shroeder Talks About Warren Buffett
• Alice Shroeder Talks At University Of Virginia
• Jason Zweig Review Of Alice Shroeder's "The Snowball"
• Warren Buffett Buys Stocks, The Snowball Chapter 2 and J. Kyle Bass
• The Snowball: Chapter 1 - The Less Flattering Version