Madoff, The Mensch Who Became A Monster

Few financial scandals can compete with the scope of Bernard Madoff's investment scheme. Steven Fishman, a reporter for New York magazine, discusses "Monster Mensch," his close look at how Madoff operated.

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There are few financial scandals that compete with the Bernie Madoff estimated $65 billion investment scheme. The scandal that mushroomed around Madoff is so large and reaches so far that it's hard to remember that Madoff himself is a real person, just plain Bernie to his friends, apparently a kind of a quiet guy who friends and associates were shocked to find at the head of the largest fraud in Wall Street history.

Steve Fishman is a reporter for New York Magazine. He's written a profile of Madoff called "The Monster Mensch." It looks closely at the man who was able to swindle so many people - many of them close friends. He's with us at our New York bureau.

Thanks for joining us, Steven.

Mr. STEVEN FISHMAN (Reporter, New York Magazine): Glad to be here.

STEWART: Now the title of the article, for people who aren't fluent in Yiddish, can you explain what a mensch is and why he's a monster mensch?

Mr. FISHMAN: Well, a mensch is an adult, somebody who behaves maturely and with respect. And Bernie is a mensch because that's really how behaved to most people for most of the time.

People took him as a stand-up guy, straight-up guy, somebody who wasn't pretentious or showy, certainly no Donald Trump in any way, shape or form. He was a guy who supposedly - with whom - you got what you thought you were getting.

STEWART: You tell us a little bit about his background before the yachts and the home in Florida and the penthouse in New York City and the $1,000 watches. He didn't come from money, right?

Mr. FISHMAN: No, he didn't. And I think that's one of the interesting things about this psychology of Bernie. He was an outer borough kid, a Queens kid - not from a particularly scrappy background, but not from a distinguished one by any means.

He wasn't somebody who was going to have his paths paved into Wall Street - just the opposite. And he really enters Wall Street through this kind of backwater, the low end. He's an outsider in the market-making business trading over-the-counter stocks, which are really the stocks that the New York Stock Exchange won't trade.

But he makes a fantastic business of this, at first just a niche business. But quickly, he latches onto the technology of the future. And he, in some ways single-handedly or with a small group of people, forces technology onto the New York Stock Exchange and really onto the trading public.

One of the results of that is NASDAQ, which, unlike the New York Stock Exchange, does not have an actual floor. It's really a computerized trading system.

STEWART: So in terms of his family background, did he seem like someone who would turn into this great financial genius? I mean, he went to law school, dropped out of law school. He seemed like he didn't have his way initially.

Mr. FISHMAN: Well, to some extent that's true. He bragged, sometimes, about going to a year of law school at Brooklyn Law. He went to Hofstra. He married his high school sweetheart. I mean, Bernie was very much a person of his time. He was somebody who grew up in the '50s, very much wanted to make it, as the phrase went.

Very much - and the terms of making it were very much financial. So Bernie was really driven to earn money. Ruthie, his wife, a cute and energetic blonde, who everybody in high school seemed to like, was his partner, his bookkeeper for a while. And he hooked up with his wife's father and rented space from him.

So he starts off modestly, but he's really a driven person who, while he doesn't have the background to succeed, really, from a very early age is on a trajectory to succeed.

Now, the one thing that I'd add to that is that like a lot of success, it really has to do with the opportunity and the timing, and Bernie is there just at the right moment when - really, the New York Stock Exchange, which is this kind of rigged club for the benefit of its members, can no - is no longer tenable because, for one thing, as I said, technology is kind of exploding that club.

STEWART: Now, you said he was in the pursuit of money, but there is sort of a suggestion that perhaps Bernie Madoff didn't really care for people who actually had money.

Mr. FISHMAN: Well, I think that Bernie, in a sense, he wasn't pretentious in that right.

STEWART: I see.

Mr. FISHMAN: He wasn't somebody who was a social climber in any way. Bernie was an (unintelligible) person. It was more in his persona than in his - in the sense of his achievement. You know, he didn't collect paintings. He didn't go to the fancy parties. He didn't sit on the board of museums, which his wealth would've, in another person, suggested that those are the kinds of things that he would have done.

So he is very much a guy who, to use another Yiddish term, is hamisch, somebody who's down to earth. And frankly, that's part of his appeal. Bernie was always somebody in whom people trusted because they didn't see a lot of guile. They didn't somebody hustling, and they didn't see somebody climbing, particularly in Palm Beach, which was one community where he belonged.

He was a member of the Palm Beach Country Club. That's very much a community - the Jewish community there - it's very much a community of, kind of, first generation wealthy - entrepreneurs with really unimproved urban accents who have come to retire, spend the money through foundations. But they were really Bernie's type of people, and they very much liked that Bernie was someone they could sit down and speak with.

STEWART: So we can continue with the Yiddishisms, but it's a shonda what he did. When did he seem to turn? When did he go from being the mensch to the monster mensch - this person who set up a system that ultimately ended up robbing people of their entire life savings?

Mr. FISHMAN: I believe that Bernie became a monster very early on. And as with a lot of these things, you know, you kind of put your toe in the water and then it's your foot and then it's your leg, but always thinking that you can exit.

And that, clearly, isn't possible with a Ponzi scheme. A Ponzi scheme is essentially something where you are paying profits to your early investors with the investments of your later investors. So it is, in effect, a continual bank run. It's impossible to get ahead of it.

The prosecutors now say that Bernie's Ponzi scheme began as - at least -as of 1992, 1993. But there's some considerable evidence that it must have gone on earlier, perhaps not to the degree that it continued later. But he was involved with a couple of accountants who quickly stopped doing accounting once they latched on to Bernie's wagon, and went out promising investors returns of as much as 20 percent. And this is going back to the '60s.

So it's very difficult to believe that Bernie was not cooking the books, really, going back 40 or so years.

STEWART: Now, you report in depth about the head of one of his largest feeder funds, a fellow named Ezra Merkin. And he's someone who will likely face some lawsuits as a result of his association with Madoff. Can you explain their relationship?

Mr. FISHMAN: Well, first of all, a feeder fund is a fund - people invest in it, and then the responsibility of the feeder fund is to pick managers that can wisely handle the money.

Ezra Merkin is a very prominent and very distinguished member of a wealthy Jewish community, largely on the Upper East Side of New York, and it's a religious community.

He seems to have intersected with Bernie, perhaps at first through the auspices of his father, Ezra's father, who was, in many ways, not only the progenitor of Ezra in a literal sense, but really set the template - Hermann Merkin was a person who was both very successful in business. He founded a synagogue, the Fifth Avenue Synagogue of which Ezra, his son, would become president.

He served on a vast number of philanthropies and Ezra would follow in his footsteps. And Bernie Madoff was, at least, an acquaintance of Hermann's. And so there was a kind of intersection and perhaps even a kind of parental sanction of Bernie Madoff - not explicit, an implicit one.

So Ezra's life and Bernie's life begin to intersect somewhere in the early '90s. By the mid '90s, they're both serving on the board of Yeshiva University, which really is the most prestigious of the orthodox charities. And so their circles intersect, not socially but in terms of philanthropy and religion - in terms of philanthropy and business.

And really, I think, what draws Ezra to Bernie is what drew so many people to Bernie - this kind of quiet, trustworthy person who bragged, not about his size outsized returns but about his steady returns.

Ezra Merkin's great talent was to be able to identify with investors. He was a terrific salesperson, which is no put-down. I mean, he was somebody…

STEWART: So he believed in Madoff? He thought Madoff was telling him the truth?

Mr. FISHMAN: He thought Madoff was telling him the truth. I think the open question is how deeply he or anybody who invested in Madoff looked into the plausibility of Madoff's claims.

STEWART: Right.

And in some ways, this goes to our era, because what we really find when we look around the whole financial landscape is that there was a kind of harder corruption, which you might associate someone like Bernie Madoff with, a kind of active corruption, but there was a whole series of levels of kind of passive corruption - people who didn't look hard enough, people who were very smart and should've known, but perhaps because of the financial advantage to them didn't think that it was worth probing quite as closely as they should have.

STEWART: It's a great read. Steve Fishman is the reporter for New York Magazine. He joined us from our New York bureau. The name of the article is "Monster Mensch" - in-depth reporting on Bernie Madoff. Thank you so much for sharing your reporting with us.

Mr. FISHMAN: Great to be with you, Alison.

STEWART: You can find a link to the article "The Monster Mensch" at our Web site at npr.org.

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