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Froma Harrop
Froma Harrop
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No Con Hurts Like an Affinity Con

Comment

Losing money doesn't feel very good. Losing it as victim of a con feels even worse. And being conned by a trusted friend multiplies the hurt.

But there's a special department of psychic pain for having experienced all of the above while fancying oneself a savvy insider in the ways of Wall Street. That bitter recognition now confronts the victims of Bernard Madoff, accused of perpetrating perhaps the biggest pyramid scheme of all time.

Madoff's theft is stunning in its size, a suspected $50 billion, and in its victims, some of the world's most sophisticated financial firms and multi-multi-millionaires. The stunning part, though, is how closely the Madoff ploy resembles the affinity frauds that have ransacked the less affluent and supposedly less worldly.

An "affinity fraud" targets members of a specific group. The group can be ethnic, religious or social. Immigrant communities are especially vulnerable.

In the Seattle area, a mortgage broker preys on fellow Filipinos at their church, helping them "buy" homes that, in fact, were kept in someone else's name. A black preacher runs a scam — the "Church Funding Project" — that steals almost $3 million from over 1,000 African-American churches. The congregants thought the funds were being invested. In Los Angeles, two Korean "money managers" defraud Korean immigrants of about $4.5 million.

In the last case, the con artists paid off early investors with the dollars coming in from new investors. As word spread in the Korean community that these guys were financial wizards, more people handed them their hard-earned savings.

Though on a far grander scale, Madoff's pyramid scheme contained the identical elements. Madoff swindled major European banks and famous hedge funds of many billions. But the affinity-fraud centered on cheating old friends at the mostly Jewish Palm Beach Country Club.

Madoff disarmed these wealthy business leaders and philanthropists with his kindliness, low-key demeanor and devotion to funding good causes.

His former role as chairman of the NASDAQ exchange gave him added stature.

Many of these club members are now cleaned out. They're selling their Palm Beach mansions and closing their charities. And piled onto the shock of staggering economic losses is the very public spectacle of having been taken — and by Bernie.

Textile magnate Carl J. Shapiro had been close to Madoff for nearly half a century, regarding him as a son as well as his money manager. Not knowing of the plot, Shapiro, now 95, had helped acquaintances at the club connect with Madoff. (The con man wouldn't take just anyone's money, a selectivity that added to his aura.)

The hoax has stripped over half a billion dollars from Shapiro's personal fortune and family foundation. Madoff's unmasking as mastermind of this super fraud was "a knife in the heart," Shapiro told Shannon Donnelly of The Palm Beach Daily News.

Were there red flags? Madoff's steady return of 1 percent a month, in bad times as well as good, should have been a warning. But in fat years, other hedge funds delivered far more extravagant gains, convincing investors that Madoff's strategy was a conservative one. That put his marks off their guard.

In this era of deregulation, almost any clever soul can commit a financial crime. The rationale behind eviscerating the Securities and Exchange Commission — that markets would take over the job of disciplining the imprudent — doesn't hold up very well in this case. If members of the Palm Beach Country Club couldn't figure out they were being scammed, what chance do less experienced investors have?

But even a well-policed financial system would be hard pressed to protect people blinded by friendship. The betrayal part is why no con hurts like an affinity con.

To find out more about Froma Harrop, and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate web page at www.creators.com.

COPYRIGHT 2008 THE PROVIDENCE JOURNAL CO.

DISTRIBUTED BY CREATORS SYNDICATE, INC.



Comments

1 Comments | Post Comment
Ma'am;... Let me suggest the impossibility of taking an honest man....Forget about the corruption in politics, and in regulation.... Forget even how stupid seems the ideal of Markets regulating themselves... Consider this... None of this train wreck from one end of the economy to the other would have been possible without the common curruption we take for granted in our own souls....We want something for nothing??? In fact, nothing for something is way more likely... But what were we all buying with our investments??? Does any care that with our dollar invested; some one at the business end has to make that dollar into a dollar and a dime? Does anyone care how the trickle of rents and interests are sweated out of people???. People buy houses and see their jobs depart... What choice have they but to depart too, leaving their equity behind to be gathered up like their property??? If you read some European history you see how capitalism developed and grew on interests some times as high as thirty percent.... What has held back capital growth in places like Dar al Islam, was that there was no way to extract excess value out of people with interests.... There; people are poor, but the poverty is general... I am not suggesting that is the way for us.... What I am saying is that the great advances made by capital were built on squeezing individuals one at a time, and has become a general squeezing of every one until it is squeezing the life out of this people and out of all our governments... No one can do no good unless interests and profits are paid... Governments can more easily justify debts than taxes which means they are building when they should not, or trying to provide services their economy cannot support.... In other words they are in their decline whether they know it or not, and just as much as any individual forced by low wages to live on credit...The fact is; If this society discovers it cannot live without credit, it has at that very moment discovered that it can live without credit... We are big enough to throw off the class of parasites and pensioners expecting to live better on our sweat than on their own labor... I collect a pension... I worked for every nickle in it... I hope to God that it is all invested in good, and with prudence; but history shows that our watchdogs are mere wolves, and too often looking for an easy profit for little labor.... We are all invested in capitalism, and now watch us all reap a dividend of poverty... What choice had we??? If the government did not do its part to fund capital, and did not do so all on debt, and make up the debt by printing money; then we could all safely put our money under the mattress...It is because of a steady inflation that steals from all people on a fixed incomes that we need to risk all to gain a little.... If we are feeding these parasites, and government is feeding these parasites, and every little wog in every third world country is feeding these parasites; then WHY??? We think we can't live without this non sense??? Like hell we can't.... We have to live without this class, or die... They have sucked the wealth out of this entire land, and reduced us all to slavery...We have nothing left to sell but our political rights which they, and the government, seem to think have no value...Let us find out what they are worth.... Because in my book, the people make the laws and decide what laws they will enforce...If our government and economy has ruined us; it is time to un-ruin us....Thanks...Sweeney
Comment: #1
Posted by: James A, Sweeney
Thu Dec 18, 2008 4:29 AM
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