Bernie Madoff was the highest paid professional in Wall Street in 1989. Yes, he was beyond rich 20 years ago. He could have a normal wealthy and decadent lifestyle: first class all the way, only the best foods and wines, royalty-class services, and getting whatever he desires at the moment’s notices. He could have all these 20 years ago without committing any crime.
Years ago, I watched a movie called Brewster’s Million. The plot is quite simple: Mr. Brewster (Richard Pryor), a penniless street bum, must spend a million dollar in a month, without accumulating any assets or giving the money away. He rented clothes, hired servants, tipped excessively, and lived in the most expensive hotel. Tried as Mr. Brewster did, he almost failed the task. It was much harder than one would imagine to spend money.
The conservative estimate of Madoff’s fraud is $13.2 billion. If he and family spend a million dollar each month, like Mr. Brewster, it would have taken them over a thousand years. In fact, it takes much less than a billion dollar to sustain a million-dollar-per-month life-style forever.
I once played a party mind-game just to stir up conversations. You are requested to pick a marble from a bath tub, blind-fold, filled with white marbles, except for one black. If you pick a white one, you get a million dollar. If black, you are killed on the spot. Would the amount of the money, or the number of white marbles, change your mind?
There was another mind game. A wealthy person committed a crime and must go to a club-med style prison for a year (think Martha Steward). She offers you a million dollar to do the time for her. Would the amount of the money, or the length of time, change your mind?
The point is quite simple: white-collar crimes are investment decisions. Madoff was a brilliant investor whose master plan is known only to himself. He expects high return with the investment that is the rest of his life. What’s the scheme?