Thursday, December 18, 2008

Buh Buh Buh Bernie And The Jews

Ronald Cass on how Madoff Exploited the Jews:

Steven Spielberg. Elie Wiesel. Mort Zuckerman. Frank Lautenberg. Yeshiva University. As I read the list of people and enterprises reportedly bilked to the tune of $50 billion by Bernard Madoff, I recalled a childhood in which my father received bad news by asking first, "Was it a Jew?" My father coupled sensitivity to anti-Semitism with special sympathy for other Jews. In contrast, Mr. Madoff, it seems, targeted other Jews, drawing them in at least in some measure because of a shared faith.

The Madoff tale is striking in part because it is like stealing from family. Yet frauds that prey on people who share bonds of religion or ethnicity, who travel in the same circles, are quite common. Two years ago the Securities and Exchange Commission issued a warning about "affinity fraud." The SEC ticked off a series of examples of schemes that were directed at members of a community: Armenian-Americans, Baptist Church members, Jehovah's Witnesses, African-American church groups, Korean-Americans. In each case, the perpetrator relied on the fact that being from the same community provided a reason to trust the sales pitch, to believe it was plausible that someone from the same background would give you a deal that, if offered by someone without such ties, would sound too good to be true.

The sense of common heritage, of community, also makes it less seemly to ask hard questions. Pressing a fellow parishioner or club member for hard information is like demanding receipts from your aunt -- it just doesn't feel right. Hucksters know that, they play on it, and they count on our trust to make their confidence games work.

The level of affinity and of trust may be especially high among Jews. The Holocaust and generations of anti-Semitic laws and practices around the world made reliance on other Jews, and care for them, a survival instinct. As a result, Jews are often an easy target both for fund-raising appeals and fraud. But affinity plays a role in many groups, making members more trusting of appeals within the group.

When this story first broke and it became clear the many of Madoff's victims were fellow Jews, I speculated that a possible explanation for why so many intelligent people could be so easily taken in was because they couldn't imagine that a fellow Jew would be capable of deceiving them in such a manner. Cass's piece seems to confirm that. It's a good reminder that while you should always be careful when dealing with strangers, the real threats often are from those that you think you know.

Cass also points out this is more a case of misplaced trust than lack of regulation:

In retrospect, the current Madoff story is about someone who was as perfectly suited to swindling as Horowitz was to playing piano. The violation of trust at the heart of that story -- of trust by those with the greatest reason to trust -- cries out for sympathy. It illustrates the limits of law, not the need for more of it.


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