The Briefing

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The Briefing

Thursday, April 15, 2021

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It's Thursday, April 15, 2021.

I'm Albert Mohler, and this is The Briefing, a daily analysis of news and events from a Christian worldview.


Bernie Madoff, Architect of the Biggest Ponzi Scheme in American History, Dies at 82: What Exactly Is a Ponzi Scheme and Why Do People Fall for Them?

It was the biggest Ponzi scheme, the biggest securities fraud in American history, at least in so far as we know right now. Bernie Madoff was at the center of the story as was his firm Bernie Madoff Securities. Bernie Madoff died yesterday at age 82 in federal custody having been sentenced in 2009 to 150 years in prison. There was no way he was going to be able to serve that prison term and of course he didn't, dying of kidney failure at age 82. But the tale of Bernie Madoff and the story behind his Ponzi scheme turns out to be a very old story in human history. But Bernie Madoff really did know how to update it and to expand it.

A Ponzi scheme is a particular kind of securities fraud. And we're going to be looking at that just a little bit closer in a moment because the Ponzi scheme is actually a tale as old as time as we might say. A Ponzi scheme is a certain kind of securities fraud. Now, when you're talking about securities fraud, you're talking about investments, you're talking about people who had placed enormous sums of money, something like $20 billion of their money and trusting it to Bernie Madoff and his securities firm in order to produce income, in order to produce investment growth. And of course the fund did produce growth. It produced growth at an unparalleled consistency.

As we'll see, one of the things that set Bernie Madoff's Ponzi scheme apart is that he didn't sell to just common people on the street the idea that they could get rich quick. Instead he told investors that he could do what no other investment manager could do. He could take their vast sums of money and produce a very good return, not a spectacular return, a very good return, but consistently year after year after year. And anyone who actually knows how securities works knows that a consistent good return will beat in almost every case, a short-term spectacular return any day. So Bernie Madoff actually did know to whom he was selling his Ponzi scheme. He knew the people whom he was defrauding. He understood exactly what he was doing. And that's why the judge who sentenced him to 150 years and that was at that point, the maximum to which he could be sentenced, why the judge described Bernie Madoff as extraordinarily evil.

But what in the world is a Ponzi scheme, and what does it mean? Well, there have been investment schemes going as back as far as there have been investments. There have been financial frauds as long as there have been finances. Which means you can basically go all the way back into the Old Testament and find plenty of evidence for financial misconduct and for financial sin. But when you're looking at the Ponzi scheme, you're really looking at the early 20th century in the United States. Specifically, we're talking about 1903 in Boston but eventually Charles Ponzi's scheme would involve many people far beyond Boston. And it also would include a large amount of money, relatively small compared to Bernie Madoff, but big enough that his fraud actually created an entire new category of crime with his own name on it.

Charles Ponzi has bequeathed to us his name as the Ponzi scheme. But Charles Ponzi wasn't selling to the rich trying to get multimillionaires to invest their money with him. Instead, he apparently actually believed that he had some kind of secret investment plan, but he sold it to the man and woman on the street, telling them that if they would invest their money, he would give them a spectacular return, and he appeared to do so. He appeared to take someone's small investment and give them an extraordinary return. That meant that there were more people bringing in their money. That's the essence of a Ponzi scheme. There actually is no investment. There is no real value. There are no real earnings. Instead, you just have more people at the wide end of the funnel trying to give their money into this game in order to gain results. And until that funnel begins to dry up, it appears to work. But when it fails, it fails almost instantly and it fails spectacularly. And then you find out, there is no more money in the funnel.

Charles Ponzi's crime goes back not just to 1903 when he arrived in the United States or 1919 when he started his so-called securities firm. By the way, that was about a decade before the development of the regulatory agency of the United States government which is supposed to protect the public from this kind of scheme. It didn't come along until the 1930s. But when you're talking about Bernie Madoff, you're talking about a firm that was established in 1960 and rose to incredible fame in the 1980s, the 1990s, and throughout much of the first decade of the 21st century. Which is to say, the Security and Exchange Commission missed the biggest Ponzi scheme in American, and thus far as it is known right now, the biggest Ponzi scheme in world history. And all this is known even though back in the early years of the 21st century, there were official complaints that were sent to the Security and Exchange Commission by people who had tried to do the math and couldn't make the math work in the investment proceeds of Bernie Madoff Securities.

There were those who were writing articles in public about the fact that no one could figure out how it could be possible that such returns have been produced. Bernie Madoff kept saying that his system was proprietary, he owned it. It was privileged, it was private, it was a trade secret. And of course it turned out that it was a trade secret. The secret was, what he was up to was fraud. The victims of Bernie Madoff didn't include many small investors or at least anything like the victims of Charles Ponzi's scheme in the early 20th century. Indeed there were major American university, major American funds, and very famous American investors who were caught having been the victims of Bernie Madoff's financial fraud. How big was the fraud? Well, it was at least 20 billion, that's billion with a "B" dollars. But the valuation of the losses go all the way up to $67 billion. But even as the victims of Bernie Madoff's scheme were wealthy at least in some sense, otherwise Bernie Madoff wouldn't have taken their money, the reality is that some of them were completely devastated.

They went from being relatively wealthy, in some case wealthy in the multi-millions, to being absolutely impoverished. It was like a biblical parable that arrived in the 21st century in the United States. And that's where some other differences between Bernie Madoff and Charles Ponzi are also interesting to us just in worldview analysis. Because we'd like to think that when you're looking at this kind of fraud, sophisticated financial investors would be able to see it when it happened. They would recognize it when it was right before their eyes. They would know better than to put their own money into it. And yet in reality, they were fighting each other to be able to get Bernie Madoff to take their money. One of the most insidious developments in Bernie Madoff's crime is the fact that he appeared to tell investors or would be investors that they weren't sufficiently committed, they didn't really need to turn to him for investment advice. But they had heard about the returns and they begged him to take their money. And after they begged, he took it.

Michael Rothfeld writing for The Wall Street Journal in light of Bernie Madoff's death yesterday wrote this, "Mr. Madoff was a brilliant con artist. He exuded respectability and cut an aristocratic figure with a mane of silver hair. He enticed victims with an air of exclusivity, luring investors to punt down huge sums by threatening to turn them away. Mr. Madoff let it be known that he wouldn't be bothered with clients who couldn't invest enough. He was famously secretive about his methods, adding to the allure and allowing him to escape detection." He was a brilliant con artist.

In order to be a brilliant con artist, you have to be brilliant as compared to other con artists. And in the case of Bernie Madoff, it was his aristocratic air and the fact that for so long, so many famous people trusted him with their money and bragged about being his clients. That just built his mystique and made his con artistry all the more powerful. Of course, there's no fun in this kind of Ponzi scheme unless the person behind the scheme is raking off vast amounts of the money that is actually being taken from the duped investors. And that's exactly what was going on.

Bernie Madoff made himself rich and he made his investors very, very poor, some of them devastatingly poor. Now, remember the numbers we're talking about here. We're talking about a number of years. We're also talking about a highly regulated business in the United States, the exchange in securities. That's after all, why you have the SEC, the Security Exchange Commission.

You are also talking about a man who added to his respectability by surrounding himself with family members as colleagues, including his two adult sons. And by the time that it became very clear that Bernie Madoff Securities was a Ponzi scheme and a fraud, his family was also destroyed. Both of his sons would die in relatively short amounts of time after Bernie Madoff's confession of his crime. One of the sons died of cancer he blamed on the stress that was brought about by his father's exposure and conviction. The other son actually couldn't bear the pressure and ended his own life.

Madoff's wife Ruth was also made absolutely poor. She had been living with her husband a very, very rich life until everything came apart. No one to this day understands exactly what anyone other than Bernie Madoff knew. Although at least one associate was suspected of being very much a part of the crime and his own brother was sentenced to a term in federal prison for complicity.

But of the account that became known in court between 2008 and 2009, it was late in 2008 in the midst of a financial recession that everything came apart for Bernie Madoff. The bottom line is that the recession brought about the failure of huge financial institutions such as Lehmann Brothers. And at that point, people began to take their money out of Bernie Madoff Securities. And that's when a Ponzi scheme fails. It's not when they put their money in the scheme. It's when they try to get their money out of the scheme or too many investors try to take too much money out of the scheme at one time. And all of a sudden it is discovered the bank is empty. There is no money there.

And that's what happened in December of 2008. And that's what led to massive human pain. That's what led to the biggest financial headlines in decades in American history. Bernie Madoff achieved what even Charles Ponzi did not achieve. He became more famous than a massive financial recession that brought about his downfall. Bernie Madoff became a living parable of American depravity. Even today, it's not exactly clear when Bernie Madoff Security shifted from being a legitimate securities enterprise into being a Ponzi scheme. But it is clear that for at least the last 16 years of the firm's existence, everything it was paying out was coming from money that was being paid in. There were no investments behind the payouts.

A part of this parable as I said earlier is that when this kind of scheme comes to an end, it comes to an end both catastrophically, and you might just say, immediately. Bernie Madoff had to admit to his two sons who he said did not know this was a Ponzi scheme that it was all based upon a lie. "There is no money," he told them. They appeared to have been absolutely incredulous and not to have understood. No one really knows what they knew. But Bernie Madoff and his two sons both said that they didn't know. The sons within hours turned in their father to federal authorities. And the federal authorities didn't appear at first to believe it either. But the people who really couldn't believe it were the people who had entrusted millions and even billions of dollars with Bernie Madoff. At least at first, they did not even have the moral imagination to come to terms with the fact that their money was gone. That Bernie Madoff was not the suave sophisticated black box investor with the Wall Street secret.

He was instead a fraud who had taken their money and given it to others, taken some for himself until too many people wanted their money back, and then there was no money to give. It crashed and the fall of that crash was very great.


A Modern Parable of American Depravity: What Do We Learn from the Parable of Bernie Madoff?

Just bringing this to a conclusion, what do we learn from the parable of Bernie Madoff? Well, we learn that in a sinful world, there are brilliant sinners, absolutely brilliant sinners. Charismatic sinners who have an incredible ability, confidence men as they are often known, who rely on the ability to present confidence and instill confidence in others when they are actually criminals. What they are selling is fraudulent. But here's another lesson for us. When you're looking even at some very, very smart and very, very wealthy people who worked hard to make their money and certainly did not want to risk it, they absolutely didn't want to lose it, the fact is that they nonetheless were willing to invest their money with someone they thought was respectable and was absolutely legitimate even when in retrospect, there were very clear danger signals that something was fundamentally wrong.

Now, one of the things this demonstrates, and the Christian biblical worldview helps us to understand this, is that sometimes our greed overrides our moral sense, or even our sense of reality. We can deny that there appears to be something off here if after all the returns seem to come so predictably and so generously right on time. But in this particular case, there's something else. And that was the fact that Bernie Madoff was selling exclusivity. It was a very restricted, very privileged club he was implying, made up of those who had the privilege of investing with him. And thus, you had people who were the cream of society, who were bragging about the fact that they had invested their money with Bernie Madoff who were telling their friends, "Maybe I can get you in too." The friends then wanting nothing more than to have their friend intervene so that the great Bernie Madoff would take their money and make them even more fabulously wealthy.

But at the end of this of course, every Ponzi scheme fails. The question is just when and where the failure will come. Every Ponzi scheme fails because at the end of the day. There is no value. And the reality is, at some point, if what you are selling has no value, someone is going to figure that out. Maybe a regulator. But there's another lesson. Even the regulators didn't catch Bernie Madoff and they had suspected something was wrong and had investigated him five times. He was carrying on the fraud all the time and couldn't believe the feds didn't detect it. But maybe there's another lesson here too. And that is the fact that we live in a complex world and we can't watch over everything and everyone all the time. Government can't, even the government of China. And you can't when it comes to even the people with whom you have a business relationship, or your banker. You can't go count your own money every night in your bank account.

There is an amount of trust that is absolutely necessary to human civilization. There's an amount of trust that is absolutely necessary in any economy. That trust of course, when violated leads to an erosion of confidence. And that meant not only when it came to Bernie Madoff, but to Wall Street in general.

Just a couple of final thoughts about this modern parable that in its own way ended with Bernie Madoff's death yesterday. Number one, it really does tell us something important in a biblical worldview that sin is so powerful that sinners, criminals, criminal conspirators in this case are often so much more ingenious, so much more creative, and so much more devious than those who would catch them that they get away with their crimes for a very, very long time. But of course in a biblical worldview we understand that even if Bernie Madoff Securities running this kind of fraud had lasted until he retired and lived on some island with his ill-gotten wealth, the reality is that even if he had been beyond the reach of the United States and its laws, he wouldn't have been beyond the reach of the law of God.

But that brings us to the last observation and that is this, the judge back in the year 2009 expressed frustration that he could only sentence Bernie Madoff to 150 years in prison. He served just about a decade of the 150 years. But what would have been an appropriate sentence? Once again, we see the limitations of human justice. The judge did the very best he could, saying that justice demanded at least that Bernie Madoff would die in prison, which he did yesterday. And therein is the parable.


‘The Quick Fix’ — Why Do Americans Tend to Be Particularly Gullible When It Comes to Psychological Fads?

But next, as we're talking about confidence and for that matter, confidence games, one of the things we need to recognize is that American culture, both popular culture and elite culture tend to give far more confidence than is valid, too much of what's reported as the results of social science or in particular social psychology. A major new book is out about this, it is entitled The Quick Fix, it is by Jesse Singal. The subtitle of the book, Why Fad Psychology Can't Cure Our Social Ills. But the book is actually even more interesting than you might think, because what Singal does in this book is to go to the history of this kind of social psychology, these kinds of psychological fads in the United States, showing that there is nothing really new under the sun.

One of the things we note about American society, society in the Western countries you might say in one sense, but in particular in the United States, is that Americans tend to be extremely gullible when it comes to psychological fads. Fad after fad comes along, and they get projected, they then get broadcasted, they become disseminated. They're celebrated, they're turned into TED Talks, you become a guest on Oprah. You find yourself being interviewed, your psychological fad becomes the subject of books, maybe even best-selling books. Everyone seems to be talking about you, Hollywood celebrities love your ideas. They even become strangely mainstream for some time until someone figures out, "Nope, that fad never delivered on its promises." Or "That scientific research by the way can't be replicated. It appears to have been based upon a misunderstanding, if not a misrepresentation."

One of the most interesting illustrations given in this book is something that I have noted when it comes to looking at many modern photographs. The photographs, often of women show them in a particular pose, usually with their elbow cocked, their hand on their hips, and with a particularly self-confident approach. Why? Well, it turns out that is a fad in itself. It goes back to Amy Cuddy who has 61 million TED Talk views. What is her view? What was her supposed finding of social psychology and social science? It was, she argued, that women could basically strike a Wonder Woman pose and in so doing, they would have an increase of hormonal activity that would actually give them confidence and assurance. If you look it, you can be it. Her suggestion was not only about photography, but saying that women should strike this pose before they would do something like to go into a job interview. That it would give them confidence, it would give them poise, and it would actually elevate certain levels of hormones that would be helpful. It turns out, maybe not, almost assuredly not.

Others fads like this are often packaged as a way to get ahead, to have more self-assurance, to increase one's effectiveness and bring in greater income. And this goes all the way back to the New Thought movement in the United States. And it shows the quasi, theological quasi-religious roots of all of this. New Thought was an idea that was made popular suggesting that the material world could actually be transformed into the spiritual world. That it was the spiritual world that was real and the material world that was entirely malleable, even if unreal in a sense. Just think of Christian Science, or for that matter, just think of the early efforts at what became prosperity theology. It is all based on a common route.

The cult of self-esteem that developed late in the 20th century and certainly has continued into our day is based upon much of the same kind of fraudulent science, a psychological fad that fails to deliver on its promises. The idea that was packaged, especially when it came to schooling children, as grit. And this from a social psychologist at University of Pennsylvania. Grit was supposed to be stick-to-itiveness and it was said that teaching grit to children was actually the secret of improving their academic performance. Turns out, not so much. It turns out that doing your homework actually adds to your academic effectiveness, not something that is described as grit, as an attitude. It's not that it's irrelevant. The point is, it just isn't the secret and concentrating on it becomes a psychological fad that's a part of the cultural conversation. Hollywood's talking about it, the educators are talking about it, Oprah is talking about it, social media won't shut up about it. But when it comes to actual documentation and evidence, evidently there's not much to it.

The self-esteem fad by the way, had one huge spectacular failure. It didn't measurably increase self-esteem. As if by the way, that was the great need of humanity, to have greater self-esteem. It turns out that efforts to build self-esteem often have no such effect. Another fad that is thoroughly debunked in this book is the so-called Implicit Association Test or IAT, which is now widely used in academia, in the military, in government, and in big business, supposedly to test implicit bias, especially when it comes to racial and ethnic bias. But the problem is that it turns out that the same person taking the test on different days may score wildly divergent scores. It's also true as the author Jesse Singal makes clear in this book that it isn't really clear what the test is testing. Is it testing racism and bias or is it testing and awareness of racism and bias? It turns out that if you have a greater understanding of what racial bias is, implicit bias as a category, you tend sometimes to score as more biased on the test, precisely because you understand it.

Even back in 2006 in the journal known as the Journal of Experimental Social Psychology, it was demonstrated that if you take this test and you take a group of say college students and you measure their scores on implicit bias, if you describe, as the author says, a wholly fictional group known as the Nafians, you can actually get college students to measurably test high on implicit bias against a people who do not actually exist. This is not to say that these fads are absolutely false. It's almost always the case that they are not absolutely false. But it is almost always the case that they are never as true as they are claimed nor are they as successful in overcoming the problem that they claim to address. One of the main issues in this book is that America does face very serious social problems. And the hard truth is, that none of these fads will actually resolve those problems. It's going to require much harder work than that.

So we come to the end of The Briefing today by beginning with a parable of a financial swindle, a financial fraud, a financial confidence game of colossal and catastrophic effect. But it turns out that there are other forms of confidence games, and some of them actually have to do with the claims of so-called social science and in this case, social psychology, most particularly the claims of those that are packaged as psychological frauds.

It turns out that when it comes to a confidence game, sometimes it's not so much that human beings are victimized by those who take their money and then swindle them. Sometimes we're victimized by ourselves, our own susceptibility to accepting this kind of fad as something that is a genuine insight, something that is a life-changing secret. Sometimes it is we who are the swindlers, and the swindled is also ourselves.

Thanks for listening to The Briefing.

For more information, go to my website at You can follow me on Twitter by going to For information on the Southern Baptist Theological Seminary, go to For information on Boyce College, just go to

I'll meet you again tomorrow for The Briefing.

R. Albert Mohler, Jr.

R. Albert Mohler, Jr.

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