What Bernie Madoff's Pity Party Can Teach Us About Financial Reform

Bernie Madoff, currently serving a 150 year sentence for his $65 billion Ponzi scheme, says that post-meltdown reforms will not be effective in preventing future frauds. In an extraordinary series of interviews with New York Magazine's Steve Fishman, he complains that there have been no criminal convictions coming out of the bailout era and calls the regulatory reforms "a joke" and the government "a Ponzi scheme." (I guess he should know.)

Throughout the interview, Madoff shifts the blame to just about everyone, including his clients ("these banks and these finds had to know there were problems"), the government (he told Fishman "he wished he'd been caught earlier") and the industry ("there's no chance that investors have in this market").

While he repeats almost compulsively that "it doesn't excuse what I did," he emphasizes his suffering and dismisses the pain and loss of the people who trusted him: "These people probably would have lost that money in the market."

Madoff in denial
The interview makes it clear that while Madoff formally accepted responsibility in court to settle the criminal charges against him, he's still in denial -- or at least spinning madly -- about his choices and their consequences. It certainly helps his case to insist that his fraud was the inevitable result of a distorted market, willfully ignorant clients, and ineffectual regulators.

In effect, Madoff argues that he didn't want to cheat anyone -- they just kept shoveling money at him and wouldn't listen when he tried to warn them. Uh-huh.

Madoff doesn't go into any detail about what makes the post-meltdown reforms "a joke." His broad dismissal sounds more like sour grapes than a considered assessment. But we shouldn't let his attempts to blame everyone else distract us from two important lessons.

Two important lessons from the pity party
Madoff, who contributed a quarter of a million dollars to political causes and candidates, knows something about what Time called "the Super Bowl for lobbyists" -- the hundreds of millions of dollars poured into Washington to water down financial reform as much as possible. Madoff got away with so much so long in part because he made a lot of friends in politics and government. We all need to better understand the huge and distorting impact private money has on public policy.

Furthermore, Madoff was more than the head of the biggest financial fraud in history by several orders of magnitude and founder of a very successful legitimate business. He was deeply involved in the entities that were responsible for overseeing his companies, including the NASD (later FINRA) and NASDAQ.

Of course, nothing much has changed at these private bodies, which are largely still controlled by insiders and affiliates of the firms whose integrity they are supposed to ensure. It probably won't happen any time soon, but these bodies need to be truly independent from the industries they oversee, so they can meet their stated obligation to "making sure the securities industry operates fairly and honestly."

Related:

• Bernie Madoff's Jailhouse Interview: Banks Were "Complicit"
• Madoff's Legacy: How the JPMorgan Chase Suit Relates to the Financial Crisis
• Enron Whistleblower: New Federal Reforms Still Weak and Pointless
• Better Than Bernie: How Wall Street Used CDOs to Perpetrate a Massive Ponzi Scheme