Dan's Papers - October 30, 2009 - COME FOR A DRINK AND I'LL SHOW YOU AROUND

Bernie Madoff's Montauk house, initially valued at $3 million when his scheme unraveled and an inventory was taken of his holdings last November, was sold three weeks ago at auction for $9.4 million to developer Steven Roth. Roth, 67, is the billionaire chairman of Vornado Realty Trust, the company that developed and built some of New York City's tallest skyscrapers. This was pocket change for Roth, and the truth is Madoff's Montauk house is modest by any oceanfront standards. It's 2,800 square feet, and has only four bedrooms and a tiny swimming pool.

Madoff's black 2001 E320 Mercedes, on the other hand, valued at $20,000 by appraisers last November, went for a mere $14,250 on Friday. The buyer is a New Jersey neurosurgeon named Gregory Przybylski.

Another car sold at that auction-they sell lots of cars at every auction-was a 2007 Coachman Freelander RV owned by a lower profile Wall Street swindler, hedge-fund whiz Sam Israel. Appraised at $27,000, it went for $27,500. Israel, after his scheme was discovered, faked his own death, then lived in his car for 22 days before turning himself in.

It is interesting to speculate why the Madoff items sold with prices so wildly differently from their appraisals, while other items did not. Obviously, a person's high profile makes a huge difference. But why the difference upward for the property and downward for the car? The car was almost a steal. In perfect condition, it's a one-owner, nine-year-old popular luxury car, with only 43,000 miles on it. As for the house, real estate prices tanked. And who knows what you get when you buy a house?

Well, there is only one vacation house in the Hamptons that is (or was) Madoff's house. You can sit in it, you can invite friends over to it. Its design came from the mind of an unbelievable crook. It's a conversation piece.

On the other hand, a car is a car. And as some woman told a reporter from the New York Post, "I wouldn't want to put my butt where he put his butt." And you can hardly invite anybody over for dinner in your car. (Well, unless you're Mr. Israel.)

Another thought is that maybe some of that $65 billion is buried somewhere at the house. It could hardly still be in the car. The Feds went over it with a fine-tooth comb. But with a house, sometimes things get buried for centuries despite everybody's best efforts. You never know.

Incidentally, I've been thinking further about Madoff and what he did. I'd like to share some of these thoughts.

One is that Madoff seems to consider himself a victim of his own Ponzi scheme. He hasn't said much. But what he did say, in open court, about his role in all this, has led me to that conclusion. He said he couldn't help himself. All sorts of people patted him on the back when they gave him a million dollars and at the end of a year he gave them $150,000 back as profit rather than the usual $50,000 other money managers, even the best of them, were coming up with. He became drunk on his clients' compliments. Then more people complimented him. So he did it again and again, each time using the next person's cash not to buy stock but to give these wonderful returns to those who came before. How did he do it? He'd smile and tell people it was as secret as the formula for Coca Cola.

He'd drive around in his Mercedes. He'd drive out to the Hamptons. He was a millionaire many times over from doing this. But he lived relatively modestly, in New York anyway. A nine-year-old Mercedes. A small country house-oceanfront, yes, but modest nevertheless.

So where did the $65 billion go? I originally figured it had to be somewhere. He took it in. A "master" was appointed by the court to try to track it down. Was it in Switzerland? Under the Montauk vacation house?

$65 billion is the gross domestic product of Bulgaria. It would be hard to misplace.

Well, I, and many others, have overlooked the obvious. Madoff did this for 10 years. Let's say he had 10,000 accounts in all. Not an unlikely number. What he did was take in $65 billion during 10 years from 10,000 families, and give ALL of it to the first 5,000 families. The next 5,000 lost everything. And that is that. Less his commissions, it was a mass re-shmerguling of the funds. Today, the first 5,000 folks are keeping their mouths shut. The last 5,000 folks are, well, we know about them. They're ruined.

And poor Bernie, the victim of his own desire to be liked, has willingly gone off and paid the price. He could not control himself. One can almost see him, tossing and turning in the middle of the night-even his wife apparently didn't know what he was doing- and thinking about how he wasn't going to be able to continue this, and how those 5,000 who were about to lose everything were going to feel about him. They thought he was their friend. He thought he was their friend. But then, the economy turned. Who knew this was going to happen? Who knew?