Bernard Madoff’s elaborate Ponzi scheme paved the way for his life of Palm Beach mansions and $40 pedicures.
But the man who bilked investors out of at least $20 billion was never in it for the money, according psychiatrists interviewed by the Daily Beast.
Rather than simply lining his own pockets—Madoff paid his ill-gotten gains backward into his Ponzi scheme, in an elaborate fraud aimed at inflating his own personal prestige.
Madoff never intended people to lose money at all.
T. Byram Karasu, a professor of psychiatry at the Albert Einstein College of Medicine, compares Madoff to the magician Houdini—motivated by a desire “to be loved, to be praised.” (Karasu based the comparison on newspaper reports about Madoff, not personal knowledge.)
As a magician, Houdini kept raising the bar and pushing his limitations with increasingly dangerous acts. By the time he attempted to escape from the Chinese Water Torture Cell in 1914, Houdini was making a comfortable amount of money. But he continued to put himself in increasing amounts of danger because he wanted to be the best magician in the world, and someone who was admired and adored by everyone.
Similarly, Madoff did not bilk investors out of billions because he needed the money —Madoff’s chief desire was “to come to a certain position in life of prestige and power,” says Karasu, who based his comments on Madoff on information he has read in newspapers.
As Jack Dovidio, a professor of psychology at Yale University put it, “for some people, money is really a way of keeping score in life,” and “if you make it illegally, your score goes up faster.” Madoff wanted other people to admire and respect him, and having an abnormally high rate of return assured that his community held him in high esteem.
While the Ponzi scheme was in effect, Madoff kept a relatively small percentage for himself. He paid most of the money backward to old investors or donated it to charity. Madoff’s over-the-top philanthropy increased his prestige. As Dovidio put it, “a good symbol of power” is “to give away something valuable.”
It’s especially strange that Madoff allowed his family to invest in a company he knew was a fraud. Dovidio holds that hucksters often “make a distinction between those people who are important and close to them and everyone else in the world.” Crooks often dehumanize their targets by calling them by a nickname like “marks,” or perhaps in this case “investors.” In their role as “investors” Madoff’s close friends and family could be dehumanized and defrauded. But when it came time to fess up, he confessed to his family, probably because, as Dovidio said, “there’s a humanity there that he can’t deny.”
Madoff had no room for guilt because he merely wanted to cycle the money on, as Karasu understands it, “enriching old customers at the expense of the new ones.” In fact, Madoff never intended people to lose money at all, and was absorbed on recycling the money from new investors to old ones. This could have gone on for another 10 to 12 years, until his death, if the market had not collapsed, precipitating investors to withdraw a collective $7 billion.
Even after his arrest, Madoff may have exaggerated the scale of his firm’s losses. (He confessed to losing as much as $50 billion, though investors so far have reported losses closer to $20 billion.)
The potentially exaggerated estimate may play into his desire for status as well. Karasu thinks a possible explanation is that “even in losing people’s money he wanted to be the biggest. He was proud of the size of the scheme.” Dovidio agrees: “If you look at whatever he says, it probably always has the ulterior motive of increasing his position of power and prestige.”
Madoff never attempted to deny the charges, honesty that Daily Beast writer Eric Dezenhall found appalling. Madoff’s lack of denial, his blunt admission to his sons that “it was all just one big lie,” is just a magician honestly revealing that his rabbit is not really in the hat, but that it is merely the audience’s perception that is screwy. As Karasu put it, “Magicians explain their tricks to the audience with a certain kind of smile on their face.”
--By Lizzie Stark