Editorial | 2023.01.30

Westworld William cowboy hat

In this post: the Madoff documentary, Elon finally dials it back, and two nutjob comics shout at one another.
Madoff (Netflix, 2023)

Netflix Bernie Madoff documentary 2023 office

Earlier this month, Netflix released a mini-series about Bernie Madoff's record-setting Ponzi scam. I was initially unimpressed since it starts out with a lot of annoying documentary tropes:
Tropeyness doesn't make the series unwatchable, but the cookie-cutterness basically says, "hey, we're not going to get too cerebral in this documentary and there will be a lot of people speculating about the dude's motives and personality".

While these tropes are used throughout the documentary, the material does get better. So here's a synopsis of the high points with a little commentary.

Netflix Bernie Madoff documentary 2023 photo

The cookie-cutter intro was a groaner and I almost hit the power button when the show decided to start at the very beginning (of Madoff, not the Ponzi). As I was trying to dig the remote out of the vein of cheez-its between my Love Sac and couch (dangerously close to the Code Red Big Gulp, I might add), the deep flashback justified itself. Madoff's first career gig was running a tiny OTC trading shop with an unregistered investment office for his father-in-law's clients. The kicker: the investment fund was wiped out in a market crash and he had to borrow his way out.

The narration fast-forwards from this prelude/precedent story to suddenly it's the 80s and Bernie runs a market making firm in NYC. I like that they didn't dwell too much on irrelevant stuff, but it made me curious how he went from penny stonks to Manhattan. They could have at least put in a trading montage (get it?).

For those unfamiliar with the saga (e.g. me), Madoff ran a market maker (a core institution of Wall Street) that gained a foothold in the industry by being an early adopter of computerized trading. According to the documentary, his firm remaining open to trading on Black Wednesday helped cement his stature on the stock exchange.

Kevin Spacey Margin Call I need the money
Different movie but a similarly-inexplicable need for more money. I'm not sure if Spacey's character was supposed to be overleveraged or simply addicted to wealth.

For all his success running a Wall Street casino, Madoff maintained a side gig: an undocumented investment firm that never made a single stock trade. If you aren't familiar with a Ponzi scheme - you basically take investor money and convince them to never withdraw, say, by claiming they are getting a reliable 9% annual return.

Netflix Bernie Madoff documentary 2023 feeder fund fairfield greenwich

In '92, the SEC found out about Madoff's investment advisory business and shut it down. He managed to fake enough records to hide the Ponzi angle, but it's still not kosher to run an unregulated hedge fund. It wasn't a huge Ponzi at that point, so he was able to borrow his way out of the mess (again).

Netflix Bernie Madoff documentary 2023 split strike

As you can imagine, he opened up shop once again. His genius strategy? A two-leg option play. Not that there's anything wrong with covered calls and protective puts.

I wonder what premiums were like in the 90s.

Netflix Bernie Madoff documentary 2023 Harry Markopolos Netflix Bernie Madoff documentary 2023 Harry Markopolos congress

The series doesn't look kindly on the SEC, the next chapter of the saga is when in 2000ish Harry Markopolos (the numbers guy at a firm that was considering doing business with Madoff) blows the whistle. Another investigation, another case where SEC managed to not mind that Madoff was running yet another off-books hedge fund.

The Markopolos saga happened over many years, but it wasn't a bunch of wild claims. They started simply with, "these returns haven't been repeated by anyone in the industry" but had some concrete, verifiable observations like, "Madoff claimed trades that exceeded the entire market's volume for a given option".

Netflix Bernie Madoff documentary 2023 newspaper Jeffry Picower
Sus.

While the Ponzi operation may have been lost on the SEC, the documentary indicates that it's pretty likely that one of Madoff's top four investors did catch on. Jeffry Picower made consistent withdrawls to the point that he made more money on the scam than even Madoff.

Netflix Bernie Madoff documentary 2023 coders

The scam required fake trades and fake account statements for clients, Madoff had a couple of coders on staff to cook the books and even create a phony DTCC interface for demos.

Netflix Bernie Madoff documentary 2023 investor richard schwartz

The documentary interviews a few investors who were left holding the bag. They're all understandably unhappy about the scam, but otherwise pretty reasonable, "I should have done more research/diversified" and "well I had to move out of West Palm Beach, it sucks but it's not the end of the world".

Madoff's main gateway to European money, however, committed suicide.

Netflix Bernie Madoff documentary 2023 interview

The SEC didn't get him. The FBI didn't get him. The IRS didn't get him. The '08 market crash got him. Enough clients needed to cash out from the imaginary $60B total account value that no amount of loans could bail him out.

The documentary drives home the numerous times (early 90s, early 00's, mid 00's) that the SEC was handed a smoking gun but chose to remain ignorant. Likewise, some of the investors they interview say that they considered the lack of sanctions to be part of the reason they chose to invest. Mention is also given to JPMorgan who happily banked the billions in actual assets without asking questions.

Netflix Bernie Madoff documentary 2023 rain money

The list

Madoff (2023) belongs in my pantheon of investment films. It's a bit fluffy and watered-down, so I wouldn't claim it's among the best. Here they are in no particular order, I might categorize them in the future:

The Big Short movie poster Margin Call movie poster Panic economic crisis movie poster
Enron smartest guys in the room movie poster The China Hustle movie poster The inventor movie poster Elizabeth Holmes
Madoff Netflix documentary movie poster

Future watches

I ran across a list of financial movies. It includes stuff I wouldn't consider in-scope for this list (e.g. The Wolf of Wall Street and Moneyball), but there are some titles I'll check out.

Update: There was another WSB post asking just this:

DiscoInError93 DiscoInError93 Rogue Trader (1999) - Dramatized recount of the Nick Leeson derivatives market blowup. Similar energy to The Big Short but a bit darker.

The Wall Street Code (2013) - Very insightful documentary on YouTube about high-frequency trading and algorithm-based analysis.

The Hummingbird Project (2018) - Drama about building fiber for HFT; a bit cheesy but entertaining.

Enron: The Smartest Guys in the Room (2005) - Documentary about stock and accounting manipulation.

Panic: The Untold Story of the 2008 Financial Crisis (2018) - Documentary about how the Federal Reserve handled the 2008 collapse.

Too Big to Fail (2011) - Dramatized recount of how the Fed bailed out the Big Banks. Really good!

Quants: The Alchemists of Wall Street - Insightful documentary about quantitative trading.

If you can read, check out Flash Boys. It's by the same author as The Big Short, which is a pretty good book in its own right.

Edit: How could I forget Anton Kreil's mini-biopic 10 Secrets to Achieve Financial Success. This is honestly incredible and worth the watch.
Illbert

Illbert Ben Garrison Scott Adams vaccine
I guess Scott Adams got vaccinated and then said he regretted it? He's still alive as far as I can tell.

The dudes on Serious Trouble mentioned that Scott Adams (of Dilbert) was threatening to sue Ben Garrison over the above cartoon. If you aren't familiar with Ben Garrison, he's a wingnut political cartoonist known for alt right views and labeling everything in his drawings. He hilariously walks the line between being hardcore antivax and having undying devotion to the president who claimed credit for the vaccines.

For his part, Scott Adams is well known for his incisive commentary on Silicon Valley and office culture long before the days of incubators and scrum masters and Mike Judge satires. I was reasonably familiar with the strip (and had desktop tearaway calendars) so I thought I could say with authority that Adams sympathized with his brainy, honest protagonist. The work-averse Wally and incompetent Pointy-Haired Boss always seemed to be caricatures of officeplace evils rather than role models. So I was midly surprised in 2016 when Cattle told me that Adams was a big fan of a particular presidential candidate that seemed to embody these caricatures. I expected that Adams, as a business owner, simply was another single-issue (taxes) voter. But there was some nonsense about a 'talent stack' and other six sigma-sounding garbage.

Persuasiveness

I guess somewhere between my last daily Dilbert calendar and 2016, Adams decided to write serious books about personal development. Because he's a third-eschelon mensa wizard or something. One of his big things is persuasion[TM]. Not persuasion like "toastmasters and empathy" but persuasion like "The Walrus and the Carpenter". Adams did a couple Reddit AMAs around this time, so in light of the hilarious antivax comic fight I took a quick trip down memory lane. I recall he made some aggressive political predictions and I wanted to check in:

CritterJams
/u/CritterJams
Does it concern you that the "Trump is a dementia-addled racist" filter predicts his behavior much more accurately than the "Master Persuader" theory you've been peddling for two years?
ScottAdamsSays
/u/ScottAdamsSays
Did your filter predict a strong economy, peace with North Korea, excellent Supreme Court picks, and crushing ISIS? Mine did.

I tried to get a North Korea tourist visa last year and they said no, what gives? Here are a few more predictions from that post:

ScottAdamsSays ScottAdamsSays Big gains with North Korea peace. Job gains at the lower end. Stocks might seesaw. China will agree to trade deals. U.S. will kill Chinese fentanyl dealers on Chinese soil.

ScottAdamsSays ScottAdamsSays In 2020, President Trump might have the strongest economy in the history of human civilization and a Nobel Peace Prize for North Korea. Unless there is a big surprise, he beats anyone.

Report card

A couple of these predictions partially worked out:
I guess Adams allowed himself to be persuaded of some things that didn't really work out:
Wait, back up one. The "U.S. will kill Chinese fentanyl dealers on Chinese soil." This seems like a relatively inauspicious claim in comparison to peace with North Korea and winning a trade war. But when you think about this claim for just a moment it's tough to conclude that it does anything except demonstrate a severe detachment from reality. Was Adams expecting drone strikes on Chinese fentanyl dealers? Or the Chinese central government embracing a joint task force with a license to kill? It's one thing to buy the Korean peace charade, thinking China is going to relinquish its sovereignty to the US demonstrates a fundamental misunderstanding of the world.

Here's the "strong economy" in two graphs (one fiscal, one monetary):

Federal budget deficit 2001 2021 presidents

M1 M2 money supply 2022 St Louis FED covid money printer

The S&P almost doubled! Sort of like doubling your chips at the blackjack table after hitting the ATM eight times.

"My predictions don't have to be accurate because I convinced you of it"

aznhomig
/u/aznhomig
Persuasion-wise, what would you say is the most impactful persuasion move Trump has done in his presidency thus far?
ScottAdamsSays
/u/ScottAdamsSays
He sold the country on "fake news" being the normal, not the exception.

Perhaps two decades of being cynical about office culture turned Adams into a nihilist. There's a big difference between saying "Trump sold people on 'fake news'" and saying "Trump enlightened us to CNN's lies". Is Adams in some uber-libertarian endgame where he's saying that the truth is dead so you might as well join the propaganda machine?

Scott Adams tweet Republicans hunted

Probably not, since so many claims (his, politicians', those of people who buy his book) can be so easily disproven. Or maybe he has complete faith in the post-Harambe world of alternative facts. Maybe the final Dilbert strip will have Pointy-Haired Boss telling Dilbert through VR goggles, "If you want a picture of the future, imagine a loafer stamping on a human face - for ever."

But for real this is a parody or performance art, right?

tcedwardz
/u/tcedwardz
What are your thoughts on Donald Trump and Kanye West recently collaborating on political issues? Do you foresee Kanye running in 2020 and does he exhibit the same persuasion skills that Trump embodies?
ScottAdamsSays
/u/ScottAdamsSays
2024 seems likely. And yes, he has Master Persuader skills.

Whatever the deal is with Adams, I got a kick out of his beef with Garrison and I quite enjoyed the dead-on prediction that Kanye would run in 2024 and has Master Persuader skills.
Shhhhh

Elon Musk blue bird ai art stable diffusion

yeahokqwerty
/u/yeahokqwerty
Do you think Elon musk is wrong to be so concerned about climate change? You've seemed to be not very concerned.
ScottAdamsSays
/u/ScottAdamsSays
When I start my electric car company, I'll agree with Musk on climate change. Stockholders will expect it.

Either by shutting up or by maxing out his controversy stats, Elon isn't getting quite so much attention in 2023. 2022 ended with a bang though.

Elon not brainwashed retweet tiny testicles
Source. Mildly editorialized.

Dude's trying to create an electronic brain interface but his commentary on mRNA vaccines amounts to retweets of Facebook-tier memes. Perhaps that's just apex persuasiveness as he tries to rebrand Twitter for a different crowd. Relatedly:

Business Insider Former President Donald Trump is preparing a Twitter comeback, with plans to drop an exclusivity agreement he has with his own platform, Truth Social, according to reports.

SEC filings show that Trump is currently obliged to wait six hours after posting on Truth Social before posting the same content on any other social media platform, an agreement that is up for renewal in June.


Could it be? Is he going to do it? Twitter CEO Donald Trump?

Elon Musk Jared Kushner world cup
"I owe them so much money they made me watch soccer."
SCOTUS revisited


Back when the Dobbs and Bruen decisions came out, I wondered if I was uber-naive to buy the line that the Supreme Court has historically been regarded as apolitical.

The Hill Americans remained steadfastly loyal to the high court for decades, Gibson said, embracing it even after the powder-keg Bush v. Gore decision of 2000, which decided an election.

But then, with Dobbs, the high court suffered "the largest decline in legitimacy that's ever been registered, through dozens and dozens of surveys using the same indicators," Gibson said. "I've never seen anything like it."

One Gallup poll, taken after someone leaked a draft of the Dobbs ruling, found that only 25 percent of the American public had confidence in the court, the lowest figure recorded in a half century of polling.

Okay it wasn't just me, nonpartisan polling suggests Americans once considered SCOTUS honorable much more commonly than today.

From the various news and interview snippets I've seen, John Roberts seems insistent that he isn't presiding over the downfall of the apolitical judiciary. So while there are zero practical recourses to last year's decisions (because 2/3rds of congress and states = lol), at least we can take some comfort in knowing that Roberts will have to come to terms with his legacy.



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