Wednesday, December 24th, 2008


The revelation that Bernard Madoff — brilliant investor (or so almost everyone thought), philanthropist, pillar of the community — was a phony has shocked the world, and understandably so. The scale of his alleged $50 billion Ponzi scheme is hard to comprehend.

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Yet surely I’m not the only person to ask the obvious question: How different, really, is Mr. Madoff’s tale from the story of the investment industry as a whole?
The financial services industry has claimed an ever-growing share of the nation’s income over the past generation, making the people who run the industry incredibly rich. Yet, at this point, it looks as if much of the industry has been destroying value, not creating it. And it’s not just a matter of money: the vast riches achieved by those who managed other people’s money have had a corrupting effect on our society as a whole.
Let’s start with those paychecks. Last year, the average salary of employees in “securities, commodity contracts, and investments” was more than four times the average salary in the rest of the economy. Earning a million dollars was nothing special, and even incomes of $20 million or more were fairly common. The incomes of the richest Americans have exploded over the past generation, even as wages of ordinary workers have stagnated; high pay on Wall Street was a major cause of that divergence.

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But surely those financial superstars must have been earning their millions, right? No, not necessarily. The pay system on Wall Street lavishly rewards the appearance of profit, even if that appearance later turns out to have been an illusion.
Consider the hypothetical example of a money manager who leverages up his clients’ money with lots of debt, then invests the bulked-up total in high-yielding but risky assets, such as dubious mortgage-backed securities. For a while — say, as long as a housing bubble continues to inflate — he (it’s almost always a he) will make big profits and receive big bonuses. Then, when the bubble bursts and his investments turn into toxic waste, his investors will lose big — but he’ll keep those bonuses.
O.K., maybe my example wasn’t hypothetical after all.
So, how different is what Wall Street in general did from the Madoff affair? Well, Mr. Madoff allegedly skipped a few steps, simply stealing his clients’ money rather than collecting big fees while exposing investors to risks they didn’t understand. And while Mr. Madoff was apparently a self-conscious fraud, many people on Wall Street believed their own hype. Still, the end result was the same (except for the house arrest): the money managers got rich; the investors saw their money disappear.
We’re talking about a lot of money here. In recent years the finance sector accounted for 8 percent of America’s G.D.P., up from less than 5 percent a generation earlier. If that extra 3 percent was money for nothing — and it probably was — we’re talking about $400 billion a year in waste, fraud and abuse.
But the costs of America’s Ponzi era surely went beyond the direct waste of dollars and cents.
At the crudest level, Wall Street’s ill-gotten gains corrupted and continue to corrupt politics, in a nicely bipartisan way. From Bush administration officials like Christopher Cox, chairman of the Securities and Exchange Commission, who looked the other way as evidence of financial fraud mounted, to Democrats who still haven’t closed the outrageous tax loophole that benefits executives at hedge funds and private equity firms (hello, Senator Schumer), politicians have walked when money talked.
Meanwhile, how much has our nation’s future been damaged by the magnetic pull of quick personal wealth, which for years has drawn many of our best and brightest young people into investment banking, at the expense of science, public service and just about everything else?
Most of all, the vast riches being earned — or maybe that should be “earned” — in our bloated financial industry undermined our sense of reality and degraded our judgment.
Think of the way almost everyone important missed the warning signs of an impending crisis. How was that possible? How, for example, could Alan Greenspan have declared, just a few years ago, that “the financial system as a whole has become more resilient” — thanks to derivatives, no less? The answer, I believe, is that there’s an innate tendency on the part of even the elite to idolize men who are making a lot of money, and assume that they know what they’re doing.
After all, that’s why so many people trusted Mr. Madoff.
Now, as we survey the wreckage and try to understand how things can have gone so wrong, so fast, the answer is actually quite simple: What we’re looking at now are the consequences of a world gone Madoff.

* By PAUL KRUGMAN (December 19, 2008)

The murder of 6-year-old Adam Walsh, which raised awareness about missing children and led to television shows like “America’s Most Wanted,” has been solved, the authorities said Tuesday.

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At a crowded news conference in the police station here, the police said they were convinced that Adam was killed by Ottis E. Toole, a drifter and convicted serial killer who confessed to the slaying and then recanted before dying in prison in 1996.

Adam was abducted from a mall across from the police headquarters here on July 27, 1981. His severed head was found two weeks later in Vero Beach, 120 miles north of the mall. The body was never found.

John Walsh, Adam’s father and the host of “America’s Most Wanted,” was at the news conference with Adam’s mother, Revé, and their three children.

“Today is a reaffirmation of the fact that he didn’t die in vain,” an emotional Mr. Walsh said. “For all the other victims who haven’t gotten justice, I say one thing: ‘Don’t give up hope.’ ”

Mrs. Walsh added, “This is a wonderful day, in spite of why we’re here.”

Chief Chadwick E. Wagner of the Hollywood Police Department said he regretted that the case had not been closed earlier and attributed that failure, in part, to flaws in his department’s investigation.

“This is a day that’s long overdue,” he said. “This case could have been closed years ago.”

Chief Wagner said Tuesday’s announcement was not the result of any new discovery, but rather the accumulation of all the circumstantial evidence over the years. “What was there was everything that was in front of our face for years,” he said.

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Chief Wagner said the investigation had always focused on Mr. Toole, and added that the case was strong enough for the police to have charged him before his death.

The photograph of the freckle-faced Adam, holding a baseball bat, became well known to Americans after his disappearance. The police investigated hundreds of leads — the serial killer Jeffrey L. Dahmer was a suspect at one point — but no arrests were made.

As hope for Adam’s return faded, the Walshes began an organization to aid and comfort other families of missing children, the National Center for Missing & Exploited Children.

The Walsh family also helped lobby Congress to pass the Missing Children’s Act in 1982, which created a national computer database of information on missing children at the F.B.I.

In October 1983, Mr. Toole told the police that he had abducted Adam from the mall and drove for about an hour to an isolated dirt road where he decapitated him.

Investigators lifted bloodstained carpet from Mr. Toole’s white Cadillac. But DNA testing then was not as advanced as it now, and investigators could not tell if the blood was Adam’s.

When a detective assigned to the case in 1994 went to order DNA testing on the bloodstained carpeting from Mr. Toole’s car, the carpeting and the car were found to be missing.

Mr. Toole, who confessed to dozens of killings over the years, was a longtime companion of another serial killer, Henry Lee Lucas. Mr. Toole died in prison on Sept. 15, 1996, while serving five life sentences.

In 2006, on the 25th anniversary of Adam’s disappearance, President Bush signed into law the Adam Walsh Child Protection and Safety Act. It expanded the National Sex Offender Registry, created a new child abuse registry and strengthened penalties for crimes against children.

Mr. Walsh said at the news conference Tuesday that while his family would never recover from Adam’s death, it could finally move on.

But, he added, “it’s not about closure; it’s about justice.”

* By YOLANNE ALMANZAR (December 17, 2008)