Bernie Madoff exemplifies the prevailing ethic on Wall Street - investors are merely marks. It’s all about the transaction, protecting the transaction and making money from the transaction, investor be damned. Madoff went a bit further than the average broker or manager.  But, the losses that his investors bear are a trifling compared to the trillions eradicated in the mortgage-backed securities catastrophe engineered by so-called ‘legitimate’ players like Bear Stearns and Lehman Bros. Who’s the greater evil?

Bernie Madoff was well protected. No one, not even the SEC, could touch him. His clout with regulatory agencies was considerable and he worked his connections effectively. What brought the Madoff operation down wasn’t the investigatory zeal of any governmental agency, it was the collapsing stock market and the inevitable run to redemptions. But then, the big investment bankers, broker/dealers and bank holding companies were equally well protected and well connected. Madoff is a parasite. But that characterization can be applied to much of Wall Street and the banking industry given the awful mess they alone created and the way they’re now conducting themselves with taxpayers’ bailout money.

In that context, Bernie Madoff is not unusual in many respects. He is the logical extension of the largely unethical practices that make up too much of the day-to-day activities on Wall Street. What goes on has been dressed up in many guises, but it’s all the same. It’s the transaction - whether the investor makes money or loses money is immaterial. The broker-dealer, the underwriter, the investment banker or the adviser is focused only on the transaction itself. It’s the transaction that creates revenue. Everything else is eyewash.

Given the stupendous disaster created by mortgage-backed securities, no one seems to remember the mutual fund scandal and the hedge fund improprieties of just a few years ago. And before that, it was the derivatives scandal, preceded by the collapse of Long Term Capital Management. There has been an endless procession of financial chicanery stretching back 100-plus years. But, everyone does forget, and Wall Street counts on it. Eventually, the sheep forget about the wolves and go back to grazing. The hunt begins anew.

The size, scope and sheer audacity of the improprieties are expanding. There’s not even a pretense of transparency or accountability. Even pretending to be ethical and aboveboard has become inconvenient and boring for some of the players involved. To Wall Street, the rest of America are just marks, nothing more. Bernie Madoff just took it one step further.

The Obama administration, not yet fully installed, is already calling for radical changes to what it brazenly characterizes as the ‘failure’ of free-market capitalism. Given their way, Obama and his handlers would institute FDR-era programs liberally mixed with Johnson-era social engineering and the hopeless, self-limiting ideology of the Jimmy Carter era. This toxic cocktail would be forced down the throats of every American, even those who believe that bigger government is not the answer, and that we should rely on our own ingenuity and hard work to get out of the current economic disaster.

There is no doubt that Wall Street screwed up. Their greed and avarice blinded them to the enormous risks they were peddling to banks, investors, pensions and governments. It’s incredible that the CEOs and chairmen of Lehman Bros., Merrill, Bear Stearns and other big investment houses didn’t fully understand what was going on inside their own firms. Apparently, the need for transparency goes much deeper - into the very innards of these organizations. It’s strange that there are no arrests, no indictments and no large-scale investigations of the mortgage meltdown, the credit squeeze and the resulting economic catastrophe.

It doesn’t take a financial wizard to observe that mortgage-backed securities were created from pools of shaky borrowers, given an unrealistic rating and then sold around the world as investment-grade instruments. What’s even more difficult to imagine is that the same people who created these toxic securities bought them for their own accounts. Once again, it doesn’t take a wizard to observe that the executives didn’t know what people in their own organization were actually doing. Given these simple observations, one can only conclude that Wall Street executives taking home billions of dollars had no idea what they were doing, or just didn’t give a damn.

The alternative explanation is even more unsettling. One can also postulate that Wall Street execs understood fully what was going on. They understood fully the risks to the world’s markets and the potential damage to the American economy. But, they were making billions of dollars and their greed blinded them to the inevitable consequences.

Does this make free-market capitalism a failure? No. The basic concept is still the best possible system ever devised. But, it does bring into question the quality and scope of enforcing laws and regulations as they apply to Wall Street, banking and lending. There is also the matter of whether corruption, graft and influence peddling has compromised oversight and enforcement. This isn’t a Republican or a Democratic problem. It wasn’t created exclusively by either party or during any one administration. This is the result of a general erosion in ethics and personal responsibility. Wall Street is merely the canary in the coal mine.

Executives on Wall Street will be sharing $1.6 billion in year-end bonuses after a disastrous year that saw trillions of dollars in personal wealth erased. They’re called retention bonuses - money to keep high powered talent from bolting and joining a competitor. But, given that most every firm on Wall Street has partaken of the government’s generosity, where would they run to? Wall Street asks that the taxpayers put this all in perspective. After all, the bonus pool is down considerably from the $45-60 billion handed out last year, when the geniuses on Wall Street thought the world was their oyster. Yes, they must be suffering terribly. No chartered yachts in the Mediterranean at $100,000 a week, no helicopter skiing in Gstadt, and that 5th or 6th home is just not going to happen this year.

Meanwhile, the national debt foisted on the taxpayer has increased by another 3 or 4 trillion when all is said and done. Let’s be clear who the taxpayer is: It’s not any household earning less than $60,000 annually. It’s not any household earning more than $1.5 million annually. It’s the 15% of the population in between those figures which shoulders 75% of all taxes paid. That small group of taxpayers also includes their dependents - the spouses and children who must cut back, economize and delay. Oh, but they have so much! They should pay their ‘fair share’, after all. In this season of giving, exactly what is ‘fair’? Is it ‘fair’ to take away five times as much from someone who’s bothered to complete their education and worked for years to achieve a good-paying job?

The progressive tax scheme is patently unfair. It penalizes personal ambition and achievement. It destroys personal incentive and self-reliance. It rewards parasitic behavior at the top and the bottom of the socioeconomic scale. Wall Street is a perfect example. The pay scales for middle management and executives is so incredibly lucrative that they gladly give away half to the government. At their pay scales it’s like winning the lottery. But, that’s cold comfort for someone who’s putting in 80 hours a week to take down $200,000 in gross compensation. Losing half of that to the tax man is a bitter pill to swallow. But it’s an everday reality for millions of well-educated, dedicated and professional Americans. And yet, they can’t complain, because they’re ‘rich’, they’re ‘privileged’. Well, they’re being looted and there’s nothing they can do about it. 

These are the same folks who paid off their college loans, got a good job and worked hard at it. They saved up their money to put a deposit on a home and this is where they were going to raise their kids. They have good credit scores, some investments and a nice, big mortgage. They’ve seen their house values deteriorate while their property taxes increase. They’ve had the credit card companies punish them with 33% interest rates for being one day late with a payment. And, they’ve had their income taxes raised at the local, state and federal level. Some have even endured the pleasure of the ATM tax scam. At some point, these people are going to stop trying so hard to get ahead. They’re going to put their feet up and lower their expectations, just like the bottom of the socioeconomic scale. Where will government turn to collect their taxes, Santa?