A GIANT PONZI SCHEME

by Alexander Cockburn

We need the brush of Caravaggio to depict the awful scene where -- at least, on their lawyer's account -- the sons of Bernard Madoff confronted the errant paterfamilias, who informed his offspring that the cupboard was bare, the investors had been duped and all these years he'd been running "a giant Ponzi scheme."

But this time, reversing Caravaggio's terrifying image in the "Sacrifice of Isaac," it was the old man who was bowed over the sacrificial rock and the sons with knives raised to dispatch their white-haired progenitor, turning him in to the FBI. Of course, there have been unkind souls eager to suggest that the three men had been working cheek by jowl for 20 years and that Bernie and his boys were in cahoots on the triage as an exercise in damage limitation. To such cynics I say, "Pshaw!"

On the other hand, I lend a more receptive ear to those who say that at least some of Madoff Sr.'s clients were not so naive as to believe he had a virtuous investment model that permitted him to report 10 to 12 percent annual returns on capital invested, through boom and bust. They thought Madoff indeed had a secret model, but one coming in the distinctly unvirtuous form of insider information.

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. Unlike Madoff, who looted his clients of a mere $50 billion, they were "too big to fail."

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 20 years, the entire American economy has become -- to quote again Bernie's succinct resume of his business -- "a giant Ponzi scheme," bloating out like the metastasizing planet described by Stanislaw Lem in his strange science fiction novel Solaris.

Uncle Sam is the biggest Ponzi operator of all. Bernie had to constantly replenish his fund with new deposits. So does Uncle Sam, wheedling more money out of the Chinese, the Indians, the Japanese and poor Third World nations forced to pony up at the point of a gun. But in the end, Uncle Sam has one huge asset denied Madoff, who seems to have stopped short of the straightforward forgery allegedly practiced by Marc Dreier, the Manhattan lawyer arrested in Canada for trying to sell nonexistent bonds to the tune of $380 million.

Uncle Sam has the printing press to run off the necessary dollars. He's certainly going to need lots of fresh new bills. You can set your clock now for the alarms scheduled to go off all the way through Obama-time: credit card debt, commercial real estate implosion, option-ARM financing.

Maybe Madoff, trolling for suckers in the Palm Beach Country Club and the Jewish charitable foundations, will become the sacrificial symbol of Wall Street thievery, sent off to the penitentiary in lieu of the real big-timers. I guess the silver lining is that anti-Semitic grumbles about the Jews taking the country to the cleaners can be trumped by pointing out that many of Madoff's victims are Jewish.

In tandem with Madoff's symbolic role, Rod Blagojevich is carrying the can for the way politicians get elected in America. If his was felonious conduct, shouldn't 98 percent of all elected officials in this country be behind bars?

The Washington Post congratulates Obama for steering clear of the slime of Chicago politics, but what actually happened is that Obama moved to richer pastures. Not for him Tony Rezko's dingy billfold but the dignity of anticipatory bri- ... uh, campaign contributions from the Pritzkers, the Crown family, the big ethanol interests in the Midwest, the nuclear industry and Wall Street financiers, the biggest of big-time money, now gratefully acknowledged in the form of Obama's cabinet appointments.

Amid the hubbub over the arrest of Blago, The New York Times ran a piece on Dec. 14 by Eric Lipton and Raymond Hernandez about Sen. Charles Schumer's version of pay-to-play. Unlike Blago, Schumer moved from talk to action. Amid the bailout negotiations, he went to a Democratic Party fundraiser in New York and addressed some 20 of the heaviest Wall Street hitters. He "offered some reassurance," wrote the Times reporters. "The businessmen could count on the Democrats to help steer the nation through the financial turmoil. ... The message clearly resonated. The next week, executives at firms represented at the breakfast sent in more than $135,000 in campaign donations."

Of course, Madoff sent Schumer individual campaign contributions down the years, recycling some of his clients' money for the worthy purpose of choking off any untoward regulatory zeal on the part of New York's senior senator. All legal and not even a four-letter word.