INTRODUCTION

          No, I am not actually referring to Bernard Madoff’s multibillion-dollar Ponzi scheme that is alleged to have collectively cost investors some 18 billion dollars. The thousands of victims from Madoff’s Ponzi scheme pale in comparison to the millions of derivative victims from those Wall Street banks that Washington has deemed too big to fail, too big to pursue criminally, and too big to regulate administratively. After all, when these victimizers imploded and the economy came tumbling down producing the worst economic recession since the Great Depression, not only were these high-rolling bankers, brokers, and insurers bailed out or rewarded for their reckless and negligent, if not criminal, behavior by the American taxpayers, but they are also the same folks responsible for drafting the Congressional reform bill that was delivered last year by the lobbyist-collaborating and non-regulatory Blue Dog Democrats to the House Financial Services Committee, over the objections of Barney Frank, the committee chair. This Wall Street proposed legislative “reform” is complete with all kinds of exceptions and exemptions so that these financial institutions can continue to engage in what has been cleverly labeled by New York Times journalist, John Cassidy, as “rational irrationality.”      

          In this paper, I lay out some of the similarities and more critical dissimilarities found between the mass mediated reactions to scams perpetrated by Madoff and to those perpetrated by Wall Street bankers. In the process, I underscore the differences in societal reactions to the white collar victimizations pulled off by one individual (and his close associates) versus those white collar victimizations pulled off by the largest financial institutions on Wall Street—including the Bank of America, Citigroup, Goldman Sachs, JP Morgan Chase, Morgan Stanley, and Wells Fargo or to what I refer to as the Gang of Six. Although this verbal exercise represents only a preliminary discussion for a deeper examination of the contradictory workings in the social construction of individual versus institutional betrayals of white-collar trust and victimization, nevertheless, I draw some tentative conclusions about what could be done to address Wall Street victimization.  

When it comes to policy considerations designed to reduce those harms or injuries brought about in corporate suites generally, it should be underscored that “the deleterious consequences [of these actions] are experienced by abstractions (such as ‘a competitive economy’ or ‘national security’), impersonal entities (such as the U.S. Treasury or multi-national corporations), or vaguely defined collectivities (such as taxpayers, voters, shareholders, or consumers).” Moreover, it is often “difficult to grasp precisely ‘who’ has suffered in these cases, and it is nearly impossible to describe or measure the background characteristics or reactions of the injured parties.”[i] For example, when it came to the fall-out from the derivatives collapse, both the perpetrators and the victims--of these high risk investments from Wall Street to Main Street--seemed to be existentially, materially, and socially invisible relative to the infamous celebrity status of Bernie Madoff, whose auctioned off jewelry, furs, and sports memorabilia at a government-run garage sale, raised close to a million dollars for some of the victims of his Ponzi scheme.

BERNARD MADOFF AND HIS VICTIMS

Madoff Speaks:

“When I began the Ponzi scheme, I believed it would end shortly and I would be able to extricate myself and my clients from the scheme.” But “as the years went by I realized that my arrest and this day would   inevitably come.”[ii]

                          At the court proceeding where Madoff plead guilty

Though Madoff did not look directly at any of the victims when they spoke of their pain and suffering in U.S. District Court during the sentencing phase, he did turn to them during his remarks before the sentence was pronounced by Judge Denny Chin and simply uttered:

“I’m sorry. I know that doesn’t help you.”

He also had the following to say:

“I cannot offer you an excuse for my behavior. How do you excuse betraying thousands of investors who entrusted me with their life savings? How do you excuse deceiving 200 employees who spent most of their working life with me? How do you excuse lying to a brother and two sons who spent their entire lives helping to build a successful business? How do you excuse lying to a wife who stood by you for 50 years?” “I will live with this pain, with this torment, for the rest of my life… I    have left a legacy of shame… to my children and grandchildren…”[iii]

                                      At the sentencing, June 29, 2009   

          Mr. Madoff’s victims came from all walks of life. They included the world’s largest banks and wealthiest people; they were also folks of modest means. At the same time, their victimization—both real and alleged—has been experienced differently depending on one’s socioeconomic class. For example, there were thousands of investors knowingly and unknowingly who invested in Madoff’s Ponzi scheme.[iv] However, there were just 113 letters filed with the federal court and only nine victim statements were recorded live the day of sentencing. Not surprisingly, the victims who spoke that day, with one exception, were not wealthy. They were ordinary people with median incomes, including a physical therapist, a retired correctional officer, and an accountant. Collectively, their stories of financial devastation where life savings were lost lasted about one hour.

Social Recognition: Victims, Judge, and Expert Speak

            Tom FitzMaurice, 63, who was working three jobs to make ends meet, stated, “There will be no retirement, no trips to California to visit our 1-year-old grandson.” He also read from a statement by his wife, Marcia, who stood by his side. It read, “I cry every day when I see the pain in my husband’s eyes”…. “I cry for the life we had.” In a letter shared by Judge Chin from one widow who had gone to see Madoff two weeks after the death of her husband to invest their life savings, he was quoted as saying, “Your money is safe with me,” as he put his arm around her. Another victim, Miriam Siegman, born blocks away from the District Court in NYC and now living a new life of poverty in Stamford, Connecticut stated, “I now live on food stamps…I scavenge in dumpsters at the end of the month.” On the other hand, Burt Ross, a former mayor of Fort Lee, N.J., having lost $5 million in retirement funds and trusts for his children, stated that he was not in bad shape personally, but was speaking on behalf of victims, including the renowned Holocaust survivor and author Elie Wiesel who had invested millions of dollars on behalf of non-profit charities. Ross had commented, “As if Mr. Wiesel hasn’t suffered enough in his lifetime.”[v]

          Traditionally, victim impact testimonies during sentencing hearings had primarily involved victims of violent offenders. However, the Crime Victims Rights Act of 2004 gave victims of all federal crimes, including economic fraud, the right to speak at sentencing. Recognizing that sentencing a 71-year-old man to 150 years is largely symbolic, Judge Chin explained that “symbolism is important for victims” because a “substantial sentence may in some small measure help the victims in their healing process.” Similarly, Jayne Barnard, a law professor at William and Mary, who had written a 2001 law review article that was influential in the change in the law in 2004 and who has argued with others that fraud victims also suffer emotionally and socially, was in attendance at the sentencing and had this to say: “The proof of the value of the process is exactly what we saw in the courtroom today. The victims were eloquent, they were dignified, and they told very powerful stories.”[vi] They also referred to Madoff as a “monster” and a “low-life” (and who can argue?). The victims present at the sentencing also burst into applause and cheers when the tough sentence was given.[vii]

            Whether or not criminal sentences and victim impact statements help with the healing process is debatable. Research findings on victim redress from both domestic and international crimes are mixed at best, and unsatisfying and alienating at worst.[viii] In the case of Madoff victims, not all investors were the same: “Not all victims were weak, defenseless, unsuspecting ‘lambs’ who, through tragic or ironic circumstances or just plain bad luck, were pounced upon by cunning, vicious ‘wolves’.”[ix] There were some 4800 clients including those who invested directly, assuming that they had $1 to $2 million dollars to invest, and the vast majority of people who invested indirectly and had their much smaller sums of money bundled together through “feeder” accounts.

Those elite individuals, who were able to invest their money directly, were obviously more capable of “writing off their losses” as a bad investment. These were not life altering investments or losses as they represented only a portion of these investors’ net worth.  On the other hand, those who invested their life sayings of far smaller denominations could not avoid financial devastation. As for the anonymous non-beneficiary victims of the not-for-profit charities, they are quite possibly unaware of their victimization altogether.

Only those elite victims who invested directly with Madoff and who should have known better about the size of the returns but whose greed got the best of them, were/are eligible for insurance claims of up to $500,000 and to whatever billions might be recovered. The other indirect investors are virtually out of luck, subject to litigation relief that will likely never occur after years of protracted litigation. In fact, around the time of Madoff’s admission of guilt and sentencing, many of his victims were lawyering up in contending groups in order to fight one another for the limited dollars in restitution. Making matters more complicated was that nobody knew how many billions were actually involved. Although since 1995 it had been estimated that investors had lost some $13.2 billion, the November 2008 account statements at the time of the collapse of Madoff’s empire, showed balances of nearly $65 billion.

In addition to which of the victims are eligible for recovery and economic restitution, there is the more complicated issue that in some instances, even neutral “observers may have reasonable doubts and honest disagreements over which party in a conflict should be labeled the victim and which should be stigmatized as the villain,” obscuring further the “determination that one person should be arrested, prosecuted, and punished, and the other defended, supported, and assisted.”[x] For example, even before the sentencing of Madoff, some of his clients had already been sued to recover more than $10 billion that they had withdrawn in recent years. It had been alleged that the trust funds and partnerships run by investors Jeffery Picower and Stanley Chais, had collectively withdrawn $6.1 billion over and above their principal investment. Although Picower and Chais had not formally responded by the time of sentencing, their lawyers claimed that they too were victims of the Madoff fraud.

Another lawsuit was also filed a few weeks before the sentencing against Cohmad Securities Corporation, one of the firms that helped feed investors to Madoff. “The suit [sought] more than $100 million in commissions earned by the Cohmad principals, who also were sued for civil fraud by the SEC.”[xi]  The suit was also seeking “more than $105 million in profits Cohmad employees and their families withdrew from the investment accounts they had with Mr. Madoff. Lawyers for Cohmad’s principals [denied] any connection to the fraud.”[xii]  Similarly, Irving Picard, a court-appointed trustee who is recovering assets for Madoff’s fraud victims, unveiled new allegations in October of 2009, against investors who allegedly benefited from the multibillion-dollar Ponzi scheme.[xiii]  Picard announced that he would also go after the assets of certain relatives of Madoff who worked at the New York firm.

WALL STREET BANKERS AND THEIR VICTIMS

          When it comes to the deceitful practices and hurtful relations of the powerful or to structural victimization, the law does not necessarily forbid these injuries by commission or omission. As Andrew Karmen points out: “It is permissible to overcharge a customer for an item that can be purchased for less elsewhere; or to underpay a worker who could receive higher wages for the same tasks at another place of employment; or impose exorbitant interest rates and hidden fees on borrowers who take out mortgages and use credit cards; and to deny food and shelter to the hungry and the homeless who cannot pay the required amount.”[xiv] In the case of the Wall Street Banking debacles of 2007-08, it is hard to get an exact or proximate figure on the number of victims involved because of the distinctions that can be made between “direct” and “indirect” victims, what with unemployment running in double digits and one out of four mortgagers in this country now owing more money on their homes than their homes are worth. But it is safe to assume that we are talking on the order of 30 to 40 million persons. One of the perpetrators of these derivative schemes, Loyd C. Blankfein, CEO of Goldman Sachs, admitted during a public mea culpa late in 2009, that we made “mistakes” and “we participated in things that were clearly wrong…we apologize.”[xv] However, he never specifically identified any of those wrongful practices, but did manage to say that Goldman Sachs et al, were doing “God’s work” to sustain the free-market system.

          In response to the fall-out from their self-inflicted wounds and to their vilification for huge profits and million-dollar bonuses, especially during a time of excessive economic pain in this country, the Wall Street bankers have found themselves under attack and on the defensive. For example, in October of last year, a couple thousand protesters marched on the American Banker Association’s annual conference in Chicago, brandishing cut-outs of bank chief executive officers. One month later, Goldman Sachs announced that it would spend $500 million to help thousands of small businesses recover from the recession. Of course, this public relations exercise represents a paltry sum of money when compared to the $16.7 billion the bank had already set aside for its bonus pool during the first nine months of 2009. During the same period, the financial industry had also spent $344 million lobbying Capitol Hill against substantive financial reform.

          Although the Wall Street banks have admitted that they played a role in the current economic crisis and that their institutional survival depended on the taxpayer bailouts, they have not actually come clean or branded the things that went wrong in an effort to prevent these at risk economic calamities from happening again. On the contrary, as noted above these Wall Street bankers have been busy working on legislation to guarantee themselves, “a free hand to keep peddling the indecipherable derivatives beyond the reach of regulators.”[xvi] Keep in mind that the Gang of Six holds more than 95 percent of the exposed derivatives whose total contract value exceeds $290 trillion. And, these bankers more generally are not about to turn their backs on those de-regulatory moves made during the Clinton and Bush II administrations, which enormously enhanced both their wealth and power. 

           As Cassidy argues in How Markets Fail: The Logic of Economic Calamities, the vision of the legendary free-market guru Alan Greenspan had dominated U.S. economic thinking for two generations and is now still very much alive as an ideological weapon. This economic theology of laissez-faire or the simplistic mythology of a self-regulating market is far from “officially dead,”[xvii] even though Greenspan has recently repudiated some of his own orthodoxy. In translating the analyses and scholarship of banker and emeritus economic professor, Hyman Minsky, Cassidy articulates a theory of “rational irrationality,” referring to the short-term actions of bond traders or subprime lenders to make a quick killing on toxic mortgage loans held together on the gamble that real estate values would continue to inevitability rise, against the odds of history which has certainly prevailed all across America during the current housing bust.

          What is interesting to note is that Greenspan, the former and longest lasting chair of the Federal Reserve made a striking apology during his Congressional testimony in October 2008, when he admitted that the assumptions about self-correcting financial markets were wrong. After nearly three decades at the helm, Greenspan has finally exited from the public stage and it seems with him his long overdue admission that the free-market without regulation is a flawed system. Unfortunately, most of the nation’s economic elite prefers to ignore Greenspan’s born again Keynesianism and his call for re-regulation. Also ignored has been Greenspan’s endorsement for breaking up those behemoth banks regarded as “too big to fail.”

As an editor for Business Week, Paul M. Barrett, has recently written:

                    Neither the Federal Reserve nor the Securities

                    and Exchange Commission appears to have the

                    mettle to impose strict limits on the kind of

                    gambling with borrowed money that drove storied

                    investment banks out of business or into the

                    hands of taxpayer-backed rescuers. And no one

                    has had the temerity even to suggest that we

                    ought to revisit the deregulatory moves of the

                    1990s…that allowed the creation of the un-

                    manageable financial monstrosities like Citigroup,

                    which would have disintegrated absent a huge

                    amount of federal aid.[xviii] 

Similarly, as Andrew Ross Sorkin, a business reporter and journalist, has argued in Too Big To Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System from Crisis—and Themselves (2009), these goliaths of the banking industry have been protected by an implied taxpayer safety net. Hence, they have a built-in incentive to start taking absurd risks again, especially as the memories of the trauma of 2008 fade from pubic consciousness.

Perpetrator and Victim Non-Recognition: Bankers Not Banksters

          Unlike Bernard Madoff, the Wall Street bankers and their associates have not only gotten off easy, been rewarded for their reckless and fraudulent behavior, and in all likelihood will receive a green light to become habitual derivative junkies, subject to future taxpaying bailouts and a bankruptcy preventative maintenance program guaranteeing risk free investments with government backed loans for the super-wealthy of Wall Street. Comparatively, the relatively small number of victims and dollars lost as a result of the Ponzi scheme pulled off by Bernie Madoff weighed against the humongous derivative scheme losses caused by the Gang of Six in conjunction with their associates at Fannie and Freddie, at Countryside, and at AIG, reveal other dissimilarities in the social construction of individual and institutional victimization. These differences in the lack of any kind of sustained social construction of institutionalized victimization compared to a perpetual construction of individualized victimization are based on the reluctance to restrict and/or regulate the socially, politically, and economically dangerous and harmful behavior of the goliaths of Wall Street, on the one hand, and the relative enforcement of criminal sanctions against individual perpetrators of fraud, on the other hand. Such differences ultimately depend on these bankers continued ability to keep their behavior free of legal intervention and criminal prosecution.

          In other words, without the necessary regulations or negative judicial sanctions and coupled with the short-lived outrage of public anger toward the too big to fail institutions, the victims of derivative scams will, despite their numbering in the tens of millions, remain invisible compared to those victims of individualized Ponzi scams. This is the case for at least three reasons. First, these Wall Street victimizers and their associates are not viewed or reacted to as the banksters they are. Thus, they are unconcerned about any social accountability for their wrongdoing or threat of punishment for their nefarious activities, even though their actions in a multitude of ways are responsible for the losses experienced by millions of stock investors and mortgage borrowers alike. Second, because these banksters have not had to face their victims in a court of law, unlike the thieving Madoff, they share neither an admission of guilt for their victimization of others nor a legacy of shame, either real or imagined. Similarly, the pain of their victims remains largely abstract despite, for example, the largest number of home foreclosures in U.S. history. Third, without the debatable symbolic value of their victims experiencing the sentencing or some other sanction against the Gang of Six, there is little, if anything, that socially reconstructs the institutionalized victimization of derivatives that remotely approaches the socially reconstructed victimization caused by the Bernie Madoff’s of the world. 

LACKING SOCIAL AND LEGAL STANDING:

WHAT’S A VICTIMOLOGIST TO DO?

          Given the inadequacy of the prevailing political-legal-economic system to reform itself so as to try to prevent the likelihood or to reduce the risks of these types of institutionalized practices from bringing on the next economic recession, and lacking the legal and social standing--the absence of the specificity of derivative criminality and/or civil liability that recognizes the accountability and responsibility of individuals and institutions--to tackle the harm caused by the Wall Street banking debacle and housing and insurance crises of 2007-08, what might victimologists propose as alternatives to criminal prosecution or civil regulation?

First, they might turn to some of the conceptual thinking and legal practices behind redressing certain state and international crimes that encompass specific structural, institutional, and individual elements.[xix] In the case of the Wall Street collapse, this would allow for the recognition that primary accountability does not necessarily lie with the CEO of any one of the Gang of Six or even with all six in some kind of super-banking conspiracy. In addition, accountability and responsibility lie with the ideological, institutional, and structural relations of neoliberalism and laissez-faire capitalism that make rational irrationality a bipartisan political probability. Within this conceptual framework, political and social responsibility requires a decision to investigate the derivative markets and some of the key economic institutions involved in these transactions.

          Second, from the combined perspectives of international and institutional victimization, civic liability becomes a legitimate way to conceptualize institutional non-individual accountability, something that is not typically subject to criminal liability. Civic liability refers to the duty of institutions, state and non-state, to protect and nurture civil society, a duty abdicated by those financial institutions controlled by the Gang of Six and their associates. Similar in conception to Fisse and Braithwaite’s Corporate Crime Accountability Model,[xx] civic liability provides a framework for investigating and understanding the workings of those institutions responsible for the etiology of large-scale financial crises, such as the stock market crash of 2007. In turn, these financial institutions are invited to manifest the virtue of taking dynamic responsibility for a substantive rights-respecting program of future preventative victimization, including hearings into those specific business practices across a wide spectrum of related enterprises that were integral to the economic crisis of 2007-08.

Third, this approach would also be consistent with the contemporary movements in Europe and elsewhere, often labeled or referred to as Corporate Social Responsibility (CSR) or Corporate Citizenship (CC). Propelled by both globalization and transnationalization as well as by environmental sustainability, the various movements for socially responsible businesses are re-examining the traditional roles and functions between three clusters of institutions—government, civic society, and the market—with the goals of striving to establish a new social consensus “concerning the (re) configuration of the relations and balance between institutions that together make up our society.”[xxi]

          Accordingly, failure to prevent a similar future economic crisis by the perpetuation of socially irresponsible activities by those too big to fail institutions could hopefully kick into motion a variety of socially responsible recovery measures and programs. These could include, for example, the cancellation of debts, the lowering of interest rates, reparations, restitution, social investments, special wealth taxes, and private sector funds to train, develop, and employ the marginally disadvantaged and the temporally under- and unemployed. By connecting the consequences of mass institutional and structural victimization to its sources or causes and, in turn, by holding these practices accountable for dealing with the future economic fall-out from rational irrationality—as policy—they could serve as the preventative alternative to prosecution and regulation.

          For now, victimologists could point out that while the Bush II and Obama administrations had a bailout plan for the empires of Wall Street, they had no bailout plan for tens of millions of ordinary folks along Main Street. Victimologists can further point out that this need not be the case. There could be both a preventative plan to reduce the likelihood of a similar kind of economic crisis and a bailout plan for the typical victims of this kind of institutional recklessness and violation of the duty to protect and nurture civil society.

TENTATIVE CONCLUSIONS:

POLICY ALTERNATIVES TO PROSECUTION AND REGULATION

Because the social construction of institutional victimization is sorely lacking in these instances of Wall Street fraud and because both the perpetrators and victims of these acts are virtually invisible, the normative prerequisites for legal and/or criminal sanctions are also missing. Hence, why not pursue a more instrumental or preventative strategy to inhibit institutionalized risk-taking and recklessness across the financial markets? Moreover, since most people—politicos or lay—are unwilling to view these Wall Street bankers as violators of the public trust and because the Ponzi schemes of the derivative type are not going to be deterred anymore than the schemes of the Madoff type, with or without formal sentencing and punishment, why not address the institutional relations that permit and encourage those practices of rational irrationality? In other words, why not opt for legal reforms that could make a real difference in reducing the likelihood of similar economic crises in the future rather than adopting the proposed bill brought to the House by the same self-interested banksters who were responsible for bringing havoc to the economy in the first place?

The short answer, of course, is that these bills will have as little chance of passing into law as a public option or real universal health care bill did. Simply stated, those types of legislative acts that could more rationally address issues of health care and banking reform in this country are not in the profit making interests of the insurers and bankers who unfortunately control Congress. In a nutshell, at this particular juncture in U.S. history, it is increasingly difficult, if not impossible, to pass legislation in the public interest. Nevertheless, what is supported here is the elimination of those two crisis responses that have thus far been used to secure strategies of deregulation. Specifically, I am referring to those policies of (1) too big to fail and (2) taxpayer bailouts. Moreover, as a more pragmatic alternative to any illusive criminal prosecution, penal sanction, and/or administrative regulation for those who actually might get caught, which does not seem to be forthcoming anyway, why not try to realistically link the responsibility and burden for these actions to the reapers of the economic crisis themselves rather than to the American taxpayer?

As economist William Greider underscores: “Instead of taxing folks to clean up after reckless Wall Street Bankers, why not tax Wall Street? Instead of tolerating behemoths regarded as ‘too big to fail,’ why not break them up before they do more damage to the country?”[xxii]  In terms of the former, there is Oregon Representative Peter DeFazio’s appealing Let Wall Street Pay for Wall Street’s Bailout Act, which would require a very small excise tax on all financial transactions—trading stocks, bonds, and derivatives—and could yield hundreds of billions annually in revenues. In terms of the latter, there is Senator Bernie Sanders’ bill that would require the Treasury Department to identify those banks that are too big to fail within one year, and then to make them smaller. As noted above, the likelihood of these bills passing is slim to none. These realities should not, however, defer legislators from trying to do so the “right thing,” especially as the current economic recovery picks up momentum and the momentary opportunity to accomplish substantial Wall Street financial reform will soon have passed Washington by. At least this way, when the next predictable economic catastrophe occurs because Congress failed to curb rational irrationality this time out, the bills that could make a serious difference in protecting millions from future victimization might be ready to go. 

Endnotes