UPDATE 29 June 2009
Madoff received a sentence of 150 years in prison today.
Original story 8 May 2009
The investors in Madoff’s Ponzi scheme received higher than average returns. Most of those who invested with Madoff had no idea how he was able to do it. It looked like magic. A recent episode on This American Life told the story of one father-in-law who warned his son-in-law that it was dangerous to invest so heavily with Madoff.
It wasn’t that the father-in-law had any special insight into Madoff’s formula or fraud. Rather the advice came on the common sense principle that it’s safer to diversify one’s investments so that if one sector goes bad there are other sources of wealth or revenue. The son-in-law obeyed dutifully but quite unhappily. For sixteen years the advice appeared to be very bad advice indeed. All the evidence seemed to be that Madoff had a magic formula and the son-in-law’s relatives were making a killing and pleading with him to defy his father-in-law and to re-invest in Madoff’s hedge fund.
The father-in-law’s advice seemed wrong up to the very moment that Madoff’s Ponzi scheme collapsed and Madoff was indicted.
This isn’t really about investing at all. It’s about faith. People invested in Madoff’s scheme because they believed in him and they believed in his magic. They didn’t (and don’t) know what that formula is but they believe that there was one. So they trusted—blindly.
That’s not faith. It’s what Stevie Wonder called superstition. For sixteen years all the evidence, all the pressure said “re-invest in Madoff.” Superstition said, “We don’t know how he’s doing it but he’s producing terrific returns. Look at the check he just sent me.”
The son-in-law, however, submitted to an authority and trusted that authority even when all the evidence seemed to be against it. Eventually the authority was vindicated and those who trusted in magic were decimated and those who believed a wise and good authority were, as it were, saved.
If the son-in-law was right to trust his father-in-law, how much wiser is it to trust in Jesus? Common sense is one thing, and it has the power to deliver us from perils in this life, but no common sense can deliver sinners from the wrath to come. Only Jesus, the wisdom of God, can do that.
Faith is only as good as its object. The Christian faith has a worthy object: Jesus the Christ. He was obedient. He was innocent and righteous. He was crucified, dead, and raised on the third day. He was seen by eye witnesses. He was seen ascending to glory. We have first-hand testimony of these things.
Magic and superstition come in many forms but they always disappoint, even if the illusion lasts for a time. Christ, the true object of true faith was there before Bernie Madoff and he will be there when the next wizard comes along peddling magic.
The Christian faith isn’t magic and it doesn’t ask for blind faith.
R. Scott Clark
R.Scott Clark is the President of the Heidelberg Reformation Association, the author and editor of, and contributor to several books and the author of many articles. He has taught church history and historical theology since 1997 at Westminster Seminary California. He has also taught at Wheaton College, Reformed Theological Seminary, and Concordia University. He has hosted the Heidelblog since 2007.
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The only crime Madoff committed is that he isn’t a public official. PONZI scheme is what the Government relies on for Social Security, Medicare, Medicaid, bailouts, etc. The only difference is the Government can keep taxing the future to pay the present (until one day the Government bankrupts, US dollars inflates like crazy, and the country collapses, I’m praying that Christ will come sooner than that, but we’ll see.)
He got away with it because he was:
1) an “insider” with friends and connections
2) State “oversight” creates a snowball of moral hazard, it doesn’t prevent it
SEC govt. officials were presented point-blank with the evidence of Madoff’s scheme several years prior by a private broker. They dropped it straight in File-13.
Why?
1) Because if you aren’t “official”, you can’t be doing “their” job. Otherwise you make them look bad. If the govt didn’t spot it, that’s because there isn’t really a problem.
2) Govt failure to live up to its promises is simply another excuse to blame everyone else for “getting away with stuff,” and an excuse to take more power and money for the State. The predictable results: an uptick in regulation, cost, and bigger failures to come. JWTNY!
There were some very sophisticated investors who invested with Madoff. Madoff was intimately involved in many industry and regulatory bodies (NASD, SIFMA, etc.) and was an “expert” in certain aspects of securities trading. His firm’s technology was used in the NASDAQ market. In fact he even gave advice to the SEC on how to prevent the very type of fraud that he perpetrated. The bottom line is that the idea that someone like him (rich, well-connected, and a community leader) would be running a PONZI scheme of the scale that he did and could get away with it all those years sounded preposterous. The investors were trusting in Madoff’s character, his abilities, his connections, reputation, resources, his “proven methods,” and his integrity for their investments. But then again, when you go down to the bank or broker and deposit your money you are doing the same thing.
“Magic and superstition come in many forms…”
For instance, Social Security, yet another famous Ponzi scheme. Now, I must go render unto Caesar his due fraud.
I would like to put this in Sunday’s bulletin.
Go for it.
It’s fun when the theologies of the cross and glory play out in common life. Who says the headlines aren’t relevant to biblical revelation–just not the way we expect or the way dispensationalists presume.