The Medusa's Head

Conspiracism is raising its Medusa's head again, her lethal visage wreathed with hissing absurdities, immobilizing judgment, melting intellect to pumice.

Journalist Russ Baker suggests in a new book, Family of Secrets: The Bush Dynasty, the Powerful Forces That Put It In The White House, And What Their Influence Means for America, "the strong possibility" (I quote from a respectful resume of his conclusions) that the 41st president, G.H.W. Bush, father of the present resident at 1600 Pennsylvania Avenue, "was involved in assassinating President Kennedy, and that Bush was involved in staging the Watergate break-in (and the break-in at Dan Ellsberg's psychiatrist's) with the purpose of having these break-ins exposed and the blame placed on President Nixon."

We're back with the old notion of a secret, all-powerful permanent government, engendered in the WASP-nest of Skull and Bones, headquartered in Langley and locked in alternate collusion and combat with another permanent secret all-powerful government, headquartered in Zion and, if we are to believe the conspiracists, exultant at this hour at the tremendous coup of Bernie Madoff's supposed victims.

Coup? I refer you to a scenario circulating the internet, titled "The Madoff Double Bluff" and credited to Muhammad Rafeeq, who makes the fatal presupposition--very common among conspiracists--that things work in the fashion advertised by the manufacturer on the outside of the box. As many children and parents learn at this time of year, this is not always the case.

In Rafeeq's case, he assumes that fund managers and bankers invariably exercise due diligence on behalf of their clients, subjecting each proposed investment vehicle to merciless scrutiny. In the mighty backwash of the Fall of the House of Madoff, we are learning once again that many fund managers and bankers did no such thing. Whether in Switzerland, London, or New York, they established themselves as feeders for Madoff and rushed him the money entrusted to them by their eager customers without a qualm, winning handsome commissions from Madoff for so doing.

But since Rafeeq thinks that Madoff's operations were under conscientious scrutiny, he concludes that "there is no way Madoff could have been pulling a scam." Having established his initial erroneous assumption as the foundation of his conspiracy, Rafeeq then raises a Gothic folly on this sand, claiming that the dirty work afoot here was not a Ponzi scheme (impossible because of zealous scrutineers) but an insurance fraud, led by Madoff to cover genuine losses from Madoff's trades by claiming a Ponzi scheme and taking full responsibility:

Rather than saying this hedge fund has gone bust, due to its choice of investment assets and investment methodologies, a scenario which is highly probable in the current financial paradigm, since all the professionals are predicting that at least 30% of all hedge funds are about to fail, more than 700 of them, the CEO [Madoff] chooses to fess up to fraud. If the CEO admits the fund has gone bust, then all those wealthy members of the Jewish community get nothing, but if the CEO admits to fraud they get their money back as compensation from the US taxpayer, just as they are also drawing money back from the taxpayers with the other hand.

In other words, it's a vast Jewish conspiracy, rather flattering to the Jews, as such conspiracy theories often are. (For such reasons Benjamin Disraeli, for one, liked to foster the notion that indeed the Jews are all-powerful.) Just as he assumes that all fund managers are conscientious, Rafeeq obviously thinks Jews are too smart to lose money.

I sent Rafeeq's reflections along to Pam Martens, a former Wall Street stockbroker who really did exercise due diligence on behalf of her clients and who was on to Madoff's game back in the early 1990s.

Martens wrote me back as follows: The author [i.e. Rafeeq] is missing a few important points. First of all, the Securities Investor Protection Corporation (SIPC) will only cover a maximum of $500,000 per account owner; some accounts had tens of millions in them.

And, finally, the author neglects the most important point: why would Madoff be willing to spend the rest of his life in jail to make others rich from SIPC refunds? I'm not buying this story. My guess (and it's just a guess at this point) is the following happened: the people who had been with Madoff since the '60s, '70s, and '80s had multiplied their original investment (on paper) many times over at the fictional annual rate of 10 to 13 per cent. Many wanted out once the market was down over 40 per cent. Once he paid them out, he had little left to meet regular income payouts and meet his high family salaries, overhead, multiple homes, yachts, private plane interests, office and payroll in London, country club memberships on Long Island and Palm Beach, etc. Then, apparently, some large redemptions were requested, totaling $7 billion. If he didn't pay, those people would have turned him in anyway. He had no choice but to fess up.

There's now much bellowing about the need for new regulations to head off the Madoffs of tomorrow. Such calls have the effect of suggesting that there were no locks on the stable door and that hence no one was really to blame for not checking that the stable door was securely shut. The deregulatory binge of the last few years notwithstanding, there are still plenty of locks--that is, regulations--on the books which, if actually used, would have stopped Madoff in his tracks.

But the regulators and overseers were corrupted. Martens quoted the detailed 21-page denunciation of Madoff to the SEC in 2005 by Harry Markopoulos, outlining with great accuracy the huge fraud underway. The letter was dismissed out of hand by the SEC, one of whose regulators married Madoff's daughter, a union given a rapturous retrospective green light in the New York Times after the scandal broke.

Bernard L. Madoff Investment Securities LLC was a crime scene for 20 years at least, and it looks as though half Wall Street was privy to the fact, not to mention the regulators and the politicians in Congress in receipt of their portion of the $590,000 which, from 1998 through 2008, Bernard L. Madoff Investment Securities spent lobbying Congress and the SEC, according to the Center for Responsive Politics. It was a huge conspiracy, though not in the least like the one sketched in by Rafeeq. Conspiracies, like accidents, very often turn out to be normalcy suddenly raised to the level of drama.