Andy Kessler, 12.16.08
From ”schlub” to ”macher” to ”goniff.”
Why, Bernie, why?
By all accounts, Bernard Madoff had a successful trading business and was a hitter on Wall Street. Bernard L. Madoff Investment Securities was one of the top three market makers in Nasdaq stocks, had over 600 brokerage clients and claimed to often contribute 10% of New York Stock Exchange trading volume, usually after the 4 p.m. market close.
So why, inquiring minds want to know, did he perpetrate the largest fraud ever on Wall Street, some $50 billion? He had it made, so why risk it?
Well, for starters, if you leave the Tri-State area, very few people know what a market maker is. At the Palm Beach Country Club or the Boca Rio, the preserved specimens at cocktail parties know about cement or paper plants; their brokers at Merrill (or maybe Goldman) are their only ties to Wall Street.
“And what do you do?”
“I’m the third-largest market maker of …”
“Oh, my drink is empty.”
Madoff was just another schlub (“worthless oaf” for you Yiddish-challenged) from New York with money. Get in line. Schlubs are a dime a dozen in the Sunshine State, contributors of hanging chads and everything.
So Madoff got the brilliant idea to start a money management business on the side. He didn’t charge any fees, explaining that he would just make money trading stocks on the securities side of the business. Merrill Lynch (nyse: MER – news – people ) and every retail brokerage player perfected this business model years ago–it’s called churning.
And the gerries fell for it. Now, all of a sudden, Madoff is a macher (a big shot, a mover). The ability to make someone money moves you to the top…
