Tuesday, March 17, 2009

No Siree Nocera[h]. You Are Dead Wrong.

March 17, 2009

Re: No Siree Nocera[h]. You Are Dead Wrong.

On the weekend of March 7th and 8th, a conference on the ineptitude, inaccuracies, problems of and possible solutions for, the mass media was held at our law school, the Massachusetts School of Law. The panelists included famous names in American journalism, deans and professors at schools of journalism, reporters and others. Two of the speakers and attendees were famous ex-Timesmen, David Cay Johnston, the financial writer and author of impressive books, and Chris Hedges, the foreign and war correspondent and author of deservedly famous books.

I mention the conference and two great Times’ reporters like David and Chris because on Saturday I read a column in the Times that represents some of what is wrong with American journalism. The column, being in the Times, is written on a much higher plane than most of the crap that passes for written journalism in this country but is nonetheless an example of the genus (not genius).

The article is by Joe Nocera. Its title tells you everything you need to know: the title, which Nocera likely did not write but which bespeaks the column very well, is “Madoff Had Accomplices: His Victims.” Not his wife. Not his brother. Not his sons. Not his niece. Not his putative auditor. Not the dozens of Wall Streeters who suspected something was wrong but didn’t tell the SEC. Not the SEC, which publicly announced in 1992 that no fraud was involved and then ignored Harry Markopolos. No, none of these. Rather, his victims. They were his accomplices.

Now, Joe Nocera is often a pretty good financial writer. He is, however, no David Cay Johnston, because he doesn’t research matters as thoroughly or carefully, and instead partially shoots from the hip, as in Saturday’s article. But there is one thing at which he is much better than David. He is much better at wrapping a load of crap in a cloak of apparent even-handedness, a veneer of apparent objectivity, and in trying to get you to swallow bovine defecation because of the veneer with which he surrounds it while unfairly savaging people.

Let me describe some of Nocera’s tricks in last Saturday’s article before getting to the meat of his argument. Read the piece yourself and you will see these tricks in full flower.

Nocera starts by describing how he chatted up a man in line with him at the courthouse, waiting to see Madoff plead last Thursday. The man was “well dressed” but “looked a little haggard.” (So might you look, Joe, if you’d been through what this fellow obviously has been through for the last three months.) The man didn’t want to give his name, says Nocera, “‘unless there is some benefit for me,’ he said dourly, but ‘I haven’t had too many benefits lately.’”

Thusly Nocera establishes the picture of a haggard, dour, selfish victim who won’t cooperate with the prominent Timesman, Joseph Nocera.

But when Nocera asked him “what role he thought the government should be playing, it was as if I had flipped a switch. Suddenly, his reticence fell away.” He said the SEC “‘played a big role in the problem, had a lot to answer for.’” He thought “the tax code should be changed” -- now heed Nocera’s comment after the dash in what follows -- “so that Madoff victims can recoup profits that turned out to be illusory -- no matter how far in the past those taxes had been paid.”

As I say, note that last editorial comment after the dash. In Nocera’s mind, it seems, if you paid the taxes a long time ago, there is something wrong with seeking to get them back, and Joe’s victim is to be condemned for desiring refunds of taxes he never owed because the income paid on them never existed. It is of no moment to Joe that, if the shoe were on the other foot, and it were the government seeking payment of taxes the “haggard,” “dour” man owed but had failed to pay 20 or 30 years ago, the government could recover from him.

Nocera goes on to write that his victim said the Securities Investor Protection Corporation “should give victims more than the current $500,000 maximum.” Notice Nocera’s use of the word “give,” as if it were some kind of charity or bailout -- which is being “given” by the trillion(s) to the Wall Street ghouls who caused the current economic disaster. No mention here that SIPC restitution was deliberately set up by by Congress 40 years ago to try to maintain confidence in investing and thereby promote the investment needed for a healthy economy. No recognition here that the amounts for recovery were established in 1978, 31 years ago, but the cost of living has risen about 350 percent since then. Nope. Just a haggard, greedy guy who wants the SIPC to “give” him money. Nice painting, Leonardo, er, Joe.

That is how Leonardo Nocera initially set the stage for what he wants to say. But then, to paint a portrait of objectivity, of even-handedness, Leonardo proclaims Madoff to be the worst of the worst, and later says “It was hard not to feel sad” for a weeping woman named Sharon Lissauer, or “for all the victims of Mr. Madoff’s evil-doing.”

Leonardo’s major point about investors was, however, “what were they thinking?” “Just about anybody who initially took the time to kick the tires of Mr. Madoff’s operation tended to run in the other direction,” he says. He then quotes the head of an advisory firm, with the hysterically appropriate name of James R. Hedges IV (no sons or daughters of immigrants or holocaust survivors or working class parents here). The aptly named Hedges said “he spent two hours asking Mr. Madoff basic questions about his operation. (Would Madoff himself have given the average investor two hours?) “The explanation of his strategy, the consistency of his returns, the way he withheld information -- it was a very clear set of warning signs,” said Mr. Hedges. “When you look at the list of Madoff victims, it contains a lot of high-profile names -- but almost no serious institutional investors or endowments. They insist on knowing the kind of information Mr. Madoff refused to supply.”

Leonardo admits that “I suppose you could argue that most of Mr. Madoff’s direct investors lacked the ability or the financial sophistication of someone like Mr. Hedges.” “But it shouldn’t have mattered,” natters Nocera. For the first lesson of investment is to diversify so you can’t lose everything to one failed investment or to a crook -- a fair point.

Nocera then quotes a Columbia Business School Professor, Bruce Greenwald, and Hedges again for the propositions that people sought “no professional advice” and “people cannot abdicate personal responsibility” when investing. (The two points seem strangely inconsistent in one way, do they not?) Leonardo is painting a picture, so he finds no investment experts to quote who would point out all the many reasons why ordinary people might have gotten sucked into Madoff. I guess Leonardo never heard of Harry Markopolos. Such one-sided quoting of experts is, I note, something the Times does more generally. (Well, maybe it’s better than the idiotic he said/she said convention of journalism, though one wonders.)

Leonardo subsequently quotes a woman named Phyllis Molchatsky, whose broker advised her to invest with Madoff because that was “a safe place to put her money.” Her story Nocera said “is sure to rouse sympathy,” but due to the fraud plus the failure of the SEC “she felt the government owed her.” Note the pejorative phrase “owed her.” So did Elie Wiesel feel this way, since he too thought the government “should help the victims -- or at least charitable institutions” -- like his, one presumes. Nocera quotes Wiesel as previously saying “The government should come and say, ‘We bailed out so many others, we can bail you out, and when you will do better, you can give us back the money,’”

“But why?” should they be bailed out, then rhetorically asks Nocera. Here is his answer in the negative to his own rhetorical question:

What happened to the victims of Bernard Madoff is terrible. But every day in this country, people lose money due to financial fraud or negligence. Innocent investors who bought stock in Enron lost millions when that company turned out to be a fraud; nobody made them whole. Half a dozen Ponzi schemes have been discovered since Mr. Madoff was arrested in December. People lose it all because they start a company that turns out to be misguided, or because they do something that is risky, hoping to hit the jackpot. Taxpayers don’t bail them out, and they shouldn’t start now. Did the S.E.C. foul up? You bet. But that doesn’t mean the investors themselves are off the hook. Investors blaming the S.E.C. for their decision to give every last penny to Bernie Madoff is like a child blaming his mother for letting him start a fight while she wasn’t looking.

The last sentence of this preceding quote from Leonardo is, I must say, particularly offensive. To blame the SEC makes one like a child blaming its mother. That is a brutal, a nasty, thing to say about people who so often followed brokers’ advice, who accepted returns that often were so much lower than were being received from mutual funds, who paid taxes that were 200 to 250 percent higher than were paid by investors in mutual funds or stocks. It is offensive, it is nasty, and it is completely ignorant of what happened. As indicated earlier, Leonardo, unlike David Cay Johnston, doesn’t do his homework.

Leonardo doesn’t seem to know that the SEC was extensively responsible, was extensively the cause, starting in December 1992, for the misery on display at the courthouse last Thursday. For, as discussed here in a prior blog, in December 1992 the SEC made a nationally-circulated public announcement that there was no fraud involved in investments placed with Madoff. This announcement was made by the federal agency that was specifically set up to protect people against investment fraud. When such an agency made such an announcement, it caused people to feel Madoff must be strictly kosher. It caused them to leave money in Madoff, to put money in Madoff for the first time, to put more money in Madoff. Nor was the announcement ever retracted so that people could defend themselves against the fraud by possibly taking money out, or possibly not putting more money in, or possibly not putting money in for the first time. It was not retracted even after Harry Markopolos drew the SEC a map in 2000, a map which the blind men and women at the SEC could not see, a map which, to quote Gary Ackerman, they could not find with both hands with the lights on. While I did not put all of my money in Madoff and so am to some degree free of the Nocerian taint of failure to diversify, and while I did the due diligence of which I was capable as described in a prior blog (where I spoke of meeting with Madoff’s number two man to obtain an explanation of Madoff’s investment strategy), I must say that the SEC’s never-retracted 1992 statement was an important factor when I first put money in Madoff in April 1995 and when I put more money in Madoff in later years. But, not doing his homework -- perhaps because it might interfere with the picture he wishes to paint? -- Leonardo does not mention the SEC’s statement or its effect on huge numbers of people, and probably does not even know about it. (If he does know about it, but left it out anyway, such omission of such a crucial matters should be grounds for being fired from the Times because it would have been such a vicious effort to slant matters.)

As for investing in Enron, failed companies, and other non-Madoff Ponzi schemes, it is true that the government hasn’t bailed them out. But it is also true that most companies fail due to market risks, which Madoff victims likewise assumed, not fraud, and one suspects that the government should bail out the Ponzi victims, like it should bail out nonflipping homeowners who, acting honestly, got sucked into subprime mortgages by the piranhas, the financial ghouls, of Wall Street. But, accepting that the government hasn’t bailed out such people -- the less affluent of this society, who always get the short end of the stick while the economic giants who caused disaster in the interests of uncabined greed receive trillions in bailouts -- it is still true that Leonardo forgets to put into his picture an essential fact: Madoff’s was the only criminal scheme that was publicly blessed by the government, which thereby sucked people into it, by a nationally circulated statement that there was no fraud (i.e., no Ponzi scheme). Nor can it yet be said that the SEC was itself warned about these other scams -- let alone warned to the extent Markopolos warned it about Madoff -- yet did nothing about them as it did nothing about Madoff.

Nor -- when expounding his philosophy of it was her fault that she was raped because her skirt should have been longer than knee length -- does Nocera see any problem with the fact that nothing was said to the SEC by the kind of investment professionals whom he quotes -- the Hedges IV of the world -- who had the knowledge and skill to suspect something was wrong. More of these people seem to surface all the time, and before this is over we are likely to find out that there were scores of them. But not one of them other than Markopolos apparently said word one to the SEC. Had they done so, had Markopolos not been a lone voice crying in the wilderness, perhaps the SEC would have stopped the fraud a long time ago and Leonardo wouldn’t have had to be in line at the courthouse last Thursday. But the thought that extensive fault might lie with his own buddies, his own sources, the kinds of financial bigshots, the ghouls of Wall Street whom one knows Nocera regularly talks with if one regularly reads his column, never seems to cross Leonardo’s mind. He’d rather blame the haggard people who lost everything, the Sharon Lissauers, the Phyllis Molchatskis, the small people who relied on the SEC, which was supposed to protect them and instead helped suck them in.*

* This posting represents the personal views of Lawrence R. Velvel. If you wish to comment on the post, on the general topic of the post, or on the comments of others, you can, if you wish, post your comment on my website, VelvelOnNationalAffairs.com. All comments, of course, represent the views of their writers, not the views of Lawrence R. Velvel or of the Massachusetts School of Law. If you wish your comment to remain private, you can email me at Velvel@VelvelOnNationalAffairs.com.

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