Nearly a decade after the crash, Hollywood struggles to fit the biggest market monster in memory into a cozy narrative box. Robert De Niro’s deadpan performance only isolates the human choices from the institutional wheels that still drive the industry. Cautionary tale or warning?
Across the two-hour span of the latest dissection of the Bernard Madoff debacle — “The Wizard of Lies,” currently airing on HBO — Robert De Niro brings his precise observation of character to a man who really seems to exist when his mouth is moving.
It’s normally called “acting.” But when you combine that level of chameleon technique with an absence of answers, the end result is something both more banal and more revealing.
There’s no movie monster meaning behind the $60 billion Ponzi scheme beyond greed, human nature and the impersonal brutality of the market. There’s no searing “Richard III” autopsy of evil here.
Instead, the feeling is more like watching a forensic “King Lear,” a tale of disaster. And for working advisors, that’s a more useful reminder of how far we’ve come — or not — since the dislocations of almost a decade ago.
Greed drives all the wheels
It may not be intentional, but De Niro’s gravitas naturally sells Madoff’s only real defense for subverting just about every regulation designed to deter him from taking his clients’ money and running.
He claims billionaires were so captivated by his promise of 10% a year regardless of market conditions that greed kept the placements coming in fast enough to keep the Ponzi scheme afloat.
We see that client-side greed on screen, feeding the impression that the victims were complicit in their own downfall. Add the natural competitive drive to brag about being on an “exclusive” platform and it’s no wonder otherwise smart people crowded into a fake investment.
But of course it took unmitigated greed on the advisory side to put that fake together in the first place. Madoff’s own ambition really doesn’t rate a lot of analysis: he was on Wall Street and that’s apparently what Wall Street people do.
It’s still no excuse. While other “master of the universe” types built high-risk products that crumpled when the markets went against them, they didn’t fudge the reporting or the custody statements in the process.
If you remember the private placement Ponzi schemes that brought down a few dozen brokerage firms in Madoff’s wake, you already know the difference.
Like Madoff, those firms sold promises that real-world math just can’t sustain. The biggest promise was consistency: in the real world, smoothing the returns comes at a price. You either sacrifice upside or you simply sacrifice a little capital to hedge.
Booking double-digit performance year after year without paying that price isn’t going to happen. Even if you’re a genius, the rest of Wall Street will smell any real edge you have and replicate it. And if you’re just lucky, every winning streak ends sooner or later.
Madoff’s streak ran for decades because his clients’ innate greed — the amount of money crowding into his accounts and staying there — only faltered in the depths of the 2008 crash. Otherwise, fresh AUM was always available to replace the scattered redemptions and keep the firm running.
A bet on greed can run a shockingly long time. But when fear comes back around, it gets a whole lot harder to dress the books. If you were already struggling to make the numbers work, the situation gets mighty precarious.
I can’t help but notice the VIX bumping within 2%-4% of the lowest levels in history for much of the last month. If there’s any fear circulating in the market these days, it’s heavily repressed.
That’s a good time for greed. I wouldn’t be surprised if your braver clients are chasing enhanced return schemes, hot stocks, whatever exotic product they hear about on the golf course that can punch their performance numbers just a little farther above the benchmark.
The Bernie Madoff of tomorrow is probably running one of those cutting-edge programs. Keep your clients away from it. Recognize the unsustainable when you see it. Educate the clients to see it too.
I know you’re not going to get pushed into becoming a latter-day Madoff’s feeder fund. Managing client greed is the best way to keep their accounts and your book clean.
They should know that returns need to be adjusted for risk. And risk is what every realistic investor needs to tolerate in order to achieve better returns than Treasury coupons can deliver.
The human limit
Ultimately “The Wizard of Lies” rests on Madoff’s pathological need to be liked. He wanted to do well for his clients even if it meant bending the financial realities for decades.
A good definition of “reality” is that it’s what prevails after we hit our natural human limits. It’s market action that zigs when all your models told you to expect a zag. It’s why the smartest stock pickers on the planet can’t bat anywhere near 100%.
And the biggest limits involve mortality. Madoff’s house of cards folded when stress from the crashing market started spiking his blood pressure and causing blinding back pain. It could easily have killed him.
That’s the detail the script lingers on. There’s no succession plan when the business is just a gifted liar and a fake trade register. If Madoff had died before the lies were exposed, the firm would have disintegrated fast.
You can’t really have one person running $65 billion solo. While he had plenty of traders and money managers on the payroll, it was all for the purposes of the shell game — they didn’t provide any real support.
Everyone else playing at his level on Wall Street had an institutional structure to cover the slack. The people could come in, cash their paychecks across a career and exit when the time came. Madoff’s only exits were feet first or hands cuffed behind his back.
In the 2008-9 time frame, a lot of careers ended. People had made a lot of money packaging precarious products that imploded.
It’s worth recalling the catch phrase of the era, “I’ll be gone, you’ll be gone.” The upshot was that smart players would get rich, move up the institutional ladder and leave the mess to the people the firm hired to replace them.
Madoff could never leave. He was a wizard trapped behind the curtain, unable to excise himself from the process or even shut down and return the capital.
While it’s far from an excuse, it’s a miserable way to make a fortune. We can all agree now that settling for an honest living would have been better for everyone.
But letting other people in on the secret workings would only have complicated the always-precarious scheme beyond the point of plausibility. Institutionalizing a lie invites a different level of regulatory scrutiny. You need real records, people watching each other’s work.
An honest operation has nothing to hide. People understand each other’s job titles and responsibilities. They can fill in for each other in emergencies.
Even now, some corners of modern Wall Street are more transparent than others. It’s good to build an org chart that a child can understand. It’s bad to work with partners that spend more effort boosting their profile — proprietary secret strategies, off-book assets — than they do on the everyday details.
Either way, both of Madoff’s sons are dead now. So is the only employee he ever trusted, played here by the always understated Hank Azaria.
There’s no legacy and nothing here to pass on to anyone. It’s a disaster out of Shakespeare, with no winners.
We can all do better. You can do better.
As I look at the hedge fund world, chasing gullible clients eager to pay big fees in exchange for the right to trail the S&P 500 — often by wide margins — I think about Madoff’s promises.
At least he offered the classic hedge fund proposition: absolute positive returns, reliable performance independent of currents in the broad market.
Today’s hedge funds have a hard time even offering that. There’s not even a fantasy there to tempt big placements.
Maybe it’s not hard to understand why Hollywood keeps having such a hard time differentiating Madoff from the rest of Wall Street. Nobody’s giving them a clear reason to draw a line.
