The sociopath with his name on the door: the life and times of Bernie Madoff

May 28, 2011

In today’s regulatory environment, it’s virtually impossible to violate rules … but it’s impossible for a violation to go undetected, certainly not for a considerable period of time. Madoff speaking on a panel called “The Future of the Stock Market” in New York on Oct 20, 2007.

[The fraud] was a nightmare for me. It was only a nightmare for me. It’s horrible. When I say nightmare, imagine carrying this secret. Look, imagine going home every night not being able to tell your wife, living with this ax over your head, not telling your sons, my brother, seeing them every day in the business and not being able to confide in them.  An interview to New York Magazine Published Feb 27, 2011

In an era of faceless organisations owned by other equally faceless organisations Bernard L Madoff Investment Securities LLC harks back to an earlier era in the financial world: the owner’s name is on the door. From the company website.


Bernard Lawrence Madoff, 73, is currently serving a 150-year prison sentence for perpetrating the biggest Ponzi scheme in history. Who is this man? And how was he able to fool almost all of the people almost all of the time? It is a gripping story. Some of the financial stuff is complicated and I would be lying if I claimed that I understood it all. But I don’t think it gets in the way of the story. This tale has everything – lies, deception, greed, negligence, incompetence, royalty, Greek tragedy, suicides and betrayal. I hope you find it as riveting as I do.

Madoff was born on April 29th,1938 in Queens,New York. He mother, Sylvia, was a homemaker, while his father Ralph was a plumber and stockbroker. His grandparents had emigrated to the States from Poland, Romania and Austria. He has an elder sister, Sondra and a younger brother, Peter. Curiously, his brother appears to have been part of the scam, while his sister was actually a victim, having apparently lost $3 million. After graduating from high school in 1956, he attended theUniversity of Alabama for one year, before transferring to and graduating from Hofstra University in 1960 with a B.A. in political science. He briefly attended Brooklyn Law School, but in 1960 he left to found the Wall Street firm Bernard L. Madoff Investment Securities LLC, where he remained until his arrest in December 2008. It was a small fish but it used innovative computer information technology to disseminate its quotes. His business grew with the assistance of his father-in-law, accountant Saul Alpern, who put him in touch with a circle of friends and their families. Initially, the firm was involved in market-making. A market maker is a company, or an individual, that quotes both a buy and a sell price in a financial instrument or commodity held in inventory, hoping to make a profit on the bid-offer spread. He also gave investment advice but this was not declared. Madoff helped popularise payment for order flow, in which a dealer pays a broker for the right to execute a customer’s order. Madoff was active in the National Association of Securities Dealers (NASD), a self-regulatory securities industry organization and served as the Chairman of the Board of Directors and on the Board of Governors of the NASD.

Madoff then was a highly respected elder statesman on Wall Street. This was a perfect front to fleece his victims. He had many different victims: the Jewish community, charities, public institutions and many prominent international investors. It was a complicated world of feeder funds, international hedge funds, sub-partnerships and pension funds.  Madoff really knew how to ingratiate himself with himself with wealthy, often older people. He was a master of human psychology. He would play hard to get; people begged him to take their money. He would swear his clients to secrecy not allowing them to do the due diligence that they should have done. They were told that if they didn’t like it, they could take their money elsewhere. Few did.

The mechanics of the fraud are just breathtaking. He had fake clearinghouse screens where his head trader, Frank DiPasquale, was apparently trading stocks withEurope. In reality he was just trading keystrokes with an employee who was hidden in a room down the hall. Madoff saved old letterheads and office equipment, so if necessary he could come up with a back-dated document and stick in the files. He knew what regulators were looking for and he really knew how to game the system. It was really brilliant, the way he covered it up. Madoff almost invented a new species of Ponzi scheme. Traditionally these schemes exploit investors’ greed, offering ridiculous amounts. Madoff didn’t do this. Instead, he exploited the investors’ fear of volatility. Madoff did not offer the highest returns, but he did offer an incredible consistency, losing in only four out of 96 months

This is the ultimate delusion. You cannot totally eliminate risk from life. I have recently finished reading No One Would Listen by Harry Markopolos, the Madoff whistleblower. Markopolos was not on the inside – he worked for a rival firm – but he could see that Madoff’s numbers just didn’t add up. It was in 1999 and it took him around five minutes. Madoff had charts showing return streams that went up at a 45-degree angle, which is impossible in finance. His only doubt was whether it was due to a kind of insider trading or a Ponzi scheme. He favoured the latter. Little did he know then that Madoff would go on conning the world for another eight years. It was not for want of trying on the whistleblower’s part. He went to the SEC five times in those years. However this organisation, which is supposed to protect investors’ interests, did nothing. The scheme finally began to unravel in December 2008, when the general market downturn accelerated. The discovery of this gargantuan fraud was not down to the SEC – Madoff turned himself in on Dec. 11, 2008.

The size of the scam is very hard to ascertain. I have heard the figure of $65 billion quoted, but we will probably never know. There were many famous victims: John Malkovich, Pedro Almodovar, Kevin Bacon and Kyra Sedgwick. This famous Hollywood couple discovered that everyone really is connected to Kevin Bacon, especially Bernie Madoff; they lost everything except their current accounts and the land they own. One of his victims, who lost a sizable chunk of his retirement savings, was Stephen Greenspan, a psychologist who specialises in gullibility. He is the author of Annals of Gullibility: Why We Get Duped and How to Avoid It.

Europe lost a lot with Madoff, but very few victims have come forward.  The reason for this reticence is that the Europeans were investing mainly through off-shore feeder funds. And when you’re in an off-shore feeder fund, chances are that you want to avoid taxes. These victims probably won’t be filing claims in the U.S.A. because were they to do so, they would be announcing to their host nation tax authorities that they had illegal money on which that they never paid tax. This would probably not be a good idea. And offshore funds tend to attract a high percentage from criminal gangs.  Madoff was playing a very dangerous game. Maybe he is better off in prison because if these criminal organisations get hold of him, he may well have a very unhappy demise.

And there were the suicides. Two stick out. René-Thierry Magon de la Villehuchet was a French aristocrat money manager and businessman who helped found Access International Advisors, a research analyst investment agency that specialised in managing hedged and structured investment portfolios. It had connections to some very wealthy and powerful European aristocrats. Villehuchet was not involved in the fraud but he couldn’t live with the shame. Bloomberg News reported on January 2, 2009 that the AIA funds had increased its aggregate exposure to Madoff from 30% to 75% of a total of $3 billion assets in 2008, for a $2.25 billion exposure. And he had all of his personal assets with Mr. Madoff. ON 23 December 2008 the 65-year-old investor locked the door of his office, slashed his wrists and arms with a box cutter and bled to death.  He had his feet on his desk and allowed the blood to flow into a rubbish bin under his desk to minimise the mess. Bottles of sleeping pills were found near the body. No suicide note was found but his brother in France received a note shortly after his death in which he expressed remorse and a feeling of responsibility. The second suicide affected Madoff directly. Indeed it was the kind of cosmic retribution that you expect in a Greek tragedy. On the second anniversary of Madoff’s arrest, his son Mark, 46, tried to hang himself with a vacuum-cleaner cord over a pipe on the living-room ceiling of his Soho loft. He didn’t succeed – it broke. He then tried a dog’s leash, and the second time he succeeded. Madoff was shattered by Mark’s death.

It is difficult to find the appropriate vocabulary to describe Madoff. Elie Weisel, who had lost his life savings and most of the assets of his foundation to Bernard Madoff, was asked if he thought Madoff was a psychopath.  Psychopath is too nice a word for him, Weisel replied. Mr Madoff has been compared to a serial killer. He certainly wreaked havoc on many lives. Serial killers enjoy having power of life or death over their victims: they are playing God. Madoff was playing financial god, ruining these people and taking their money. Madoff will have none of it. In fact he is in therapy. He asked his therapist if he was a sociopath. She replied that he was not a sociopath, that he had morals and he felt remorse. Diana Henriques, author of The Wizard of Lies: Bernie Madoff and the Death of Trust, argues that he couldn’t admit failure. He insisted to her that he hadn’t really been defeated by the market turmoil of 2008. He believes that he could have kept the fraud going – he claimed that he had plenty of people who were still willing to give him money – but he was tired of having to keep up the fraud.

What conclusions can we draw from all this? This type of scandal will always happen. There’s a basic law of the market. When you get rich, it’s because you’re smart, but when you get poor, it’s because somebody cheated you. I don’t how understand how people could have put all their eggs into one basket. That makes no sense. The role of the SEC was catastrophic. If regulation is done badly, it is actually worse than no regulation at all. Clients were reassured by SEC supervision and audit. It was the official seal of approval. The hedge funds and the banks were basically marketers, skimming off their highly lucrative cut – usually 1% or 2%. This fee was supposed to be for their due diligence. There seems to have been very little of that.  Very few people come out of this episode with much credit. All I can say is that when it comes to finance, a healthy dose of scepticism and a little historical perspective are as essential as they have always been. Failure to remember this can seriously damage your wealth.

Boudreaux’s letters #2

May 28, 2011

Here are some more examples of Don Boudreaux’s letters to newspaper editors about common economic fallacies. Boudreaux blogs at


John Hill asserts that “The free market has many virtues, but by its nature it must remain callous to human suffering caused by illness”

Really?  Take a walk down the pharmaceutical aisle in a typical modern supermarket.  You’ll find shelves stuffed with analgesics, antihistamines, antiseptics, antifungal medicines, bandages, and nutritional supplements – all supplied by private, profit-seeking companies.  Keep walking and you come to the store’s pharmacy, where you can buy yet other medicines – such as those that address serious illnesses like depression, hypertension, and high cholesterol – created and produced by private, profit-seeking firms.

 It’s no wonder that my GMU colleague Peter Leeson found that, in countries that became more capitalist since 1980, average life-expectancy at birth has risen from less than 63 years to 67.5 years (by 2005).  In countries that became less capitalist since 1980, life-expectancy at birth fell from 59 to 57 years.*

Thank goodness for “callous” capitalism.


 Michael Norton and Dan Ariely surveyed us Americans and found that we “drastically underestimated the current gap between the very rich and the poor” (“Spreading the wealth,” Nov. 8).  They found also that Americans’ “ideal” distribution of wealth is one that is more even than is the wealth-distribution in reality.

There are many reasons why Messrs. Norton and Ariely are mistaken to conclude that their findings support “policies that involve taking from the rich and giving to the poor.”  Here’s just one:

That Americans “drastically” underestimate the wealth of “the very rich” compared to the wealth of “the poor” reveals that the difference in the number of dollars owned by “the very rich” compared to the number of dollars owned by “the poor” translates into a much smaller – that is, far more equal – difference in living standards.  In other words, differences in monetary wealth are not the same as differences in living standards.

Bill Gates’s monetary wealth, for example, is approximately 70,000 times greater than my own, but I’m certain that he doesn’t daily ingest 70,000 times more calories than I ingest in a day.  I’m also certain that the food Bill Gates eats isn’t 70,000 times tastier than the food I eat; that his many homes are not 70,000 times larger than my one home; that his children are not educated 70,000 times better than is my child; that he cannot travel to Europe or to Asia 70,000 times faster or more safely than I can; that he doesn’t have 70,000 times more annual leisure than I have; and that he will not live 70,000 times longer than I will live.

I’m even sure that he’s not 70,000 times happier than I am.

So, really, it’s incorrect to conclude that Bill Gates’s real wealth is 70,000 times larger than my real wealth.  The difference isn’t remotely close to being that large.


Will Wilkinson’s essay on income inequality inAmericais splendid (“This ain’t no banana republic,” Nov. 19).”  In it, Mr. Wilkinson correctly challenges New York Times columnist Nicholas Kristof’s claim that “the wealthiest plutocrats now actually control a greater share of the pie in the United States” than in several countries of Latin America.  Rich Americans, Mr. Wilkinson rightly points out, overwhelmingly are business people who serve the middle-classes and not political, military, or ecclesiastic predators who steal from peasants.

This fact makes Mr. Kristof’s claim that wealth is “controlled” in America highly misleading.

Except insofar as rich Americans succeed at getting government to protect their wealth with special privileges, such as tariffs, wealth is not “controlled.”  Wealth is created only by serving consumers – that is, by making others wealthier – and it flees from those who stop serving consumers.  Should Apple stop producing innovative products that consumers willingly buy, Steve Jobs’s fortune will disappear.  Should Southwest Airlines start charging uncompetitive fares, its shareholders’ wealth will dissolve.  Should a super-wealthy hedge-fund manager consistently fail to increase the value of his clients’ portfolio, he will become a not-so-super-wealthy ex-fund-manager.

In market economies, wealth isn’t controlled so much as it is deployed in the service of others.


Bill Gates writes that “slowing population growth” has “proven … to be critical to long-term economic growth” What’s the evidence for this claim?

Did Hong Kong grow as a result of slowing population growth?  No.  What about Taiwan over the past 60 years?  No.  Was slowing population growth key to England’s unprecedented economic blossoming during the industrial revolution?  No.  Did population growth in America slow before its economy began to grow?  No.

Did the great 20th century migration to California cause that state’s economy to languish?  No.  Do the high population densities of Manhattan, London, Sydney, and Tokyo keep people in those cities poor?  No.  What about high population densities of countries such as South Korea, Netherlands, and Belgium– are their citizens poor as a consequence?  No.  Do low population densities in the Republic of Congo, Chad, and Bolivia keep people in those countries rich?  No.

It’s disappointing that Mr. Gates, visionary entrepreneur that he is, so readily accepts the pop myth that population growth is a drag on economic growth.


Applauding British legislation “allowing citizens to sue companies for excess packaging,” Scott Cassel declares that “theUnited  States is far behind” (Letters, Dec. 31).

A nation is hardly “far behind” by refusing to create a cause of action based upon nebulous damages (How will courts measure such harm?) and upon an even more nebulous ‘offense’ (What, exactly, is “excess” packaging – and how on God’s green earth is a court to make such a determination for each of the countless different products available on the market?).

Moreover, producers already have strong incentives to avoid excess packaging.  Not only do packaging materials cost producers money, heavier packaging means higher shipping costs.  That businesses respond positively to these incentives to find ever-better ways to keep packaging optimal is revealed in the data; as reported earlier this year by economist Daniel Benjamin, “Over the past 25 years, the weights of individual packages have been reduced by amounts ranging from 30 percent (2-liter soft drink bottles) to 70 percent (plastic grocery sacks and trash bags)”


William Kristol argues that “American principles” require Uncle Sam to intervene more vigorously – with force, if necessary – in the revolutions now sweeping through theMiddle East.

I disagree.  While we should cheer for liberalization to grow and spread throughout the Middle East, American principles counsel our government not to interfere.  One of these principles, after all, is that government (even our own) is an inherently dangerous agent best kept on as short a leash as possible.  Another of these principles is that top-down social engineering is bound to have undesirable unintended consequences – a fact that is no less true when the social engineers are headquartered in the Pentagon and the State department as when they are headquartered in the Department of Health and Human Services and the Department of Education.  The same government that Mr. Kristol so often, and rightly, criticizes for making a mess of matters here at home is unlikely to become a shining example of efficiency, rectitude, and Solomaic wisdom in foreign lands.


In “Need Versus Greed,” Jeffrey Sachs asserts that current market-based forces of economic growth are unleashing upon humanity a “calamity” of resource depletion and environmental destruction. Unfortunately, Prof. Sachs views economic growth through a lens of Gandhian banalities.

On matters of economic growth, the late Julian Simon was far more insightful than was the late Mohandas Gandhi.  (What, really, does it mean for Gandhi to say “there is enough on Earth for everybody’s need, but not enough for everybody’s greed”?  Jingles aren’t analyses.)  Simon argued that, in markets that are at least reasonably free, resources are continually being discovered and created by human ingenuity – ingenuity powered by the drive for profit and guided by market prices which rise and fall in response to changes in patterns of consumer demands and to changes in resource supplies.

History overwhelmingly supports Simon’s thesis.  Despite two centuries of unprecedentedly high and sustained economic and population growth, supplies of nearly all resources are today greater than they were at the dawn of the industrial age, and the environments that human beings inhabit are immeasurably cleaner and healthier.  As a result, we are now living longer and in better health than ever before.

Why does Prof. Sachs suppose that recent upticks in the rates of economic growth of some Asian countries will reverse this 200-year-long process?


Setting up a straw man for the slaughter, Dustin Ensinger asserts that “Proponents of unfettered free trade have long claimed that lowering trade barriers will allow America to export more and more goods, eventually leading to trade surpluses and economic prosperity”  Wrong.

Proponents of unfettered free trade have long claimed that lowering trade barriers will allowAmericato import more and more goods, eventually leading to greater economic prosperity.  Period.

Proponents of unfettered free trade – at least those who understand economics – don’t give a damn about trade ‘deficits’ or ‘surpluses.’  They agree with Adam Smith that “Nothing, however, can be more absurd than this whole doctrine of the balance of trade.”*


Ariel Dorfman wants President Obama, during his trip toChile, to visit Salvador Allende’s grave as a means of paying respect to the late Marxist leader that nation.

 Such a visit would be improper.  The fact that Allende was ousted in a coup that resulted in the brutal regime of Augusto Pinochet doesn’t justify the Left’s deification of Allende; he, too, was a thieving brute.  Not only did Allende nationalize (i.e., steal) many of Chile’s industries; not only did his irresponsible monetary policy result in annual inflation rates as high as 140 percent (i.e., more theft of assets, this time from ordinary citizens who saw the return to their work effort diminish daily); and not only did he praise and cozy up to Cuba’s murderous Fidel Castro – Allende also violated, with reprehensible actions, Chile’s constitution.

Harvard-trained economist Jose Pinera, brother of Chile’s current president, notes that, while Allende was popularly elected, “his government lost its democratic character by repeatedly violating the Constitution.”  And just weeks before Allende was deposed,Chile’s democratically elected Chamber of Deputies drew up “a list of twenty legal and constitutional violations of President Allende’s government (including illegal detentions and torture).”*

The fact that Allende justified his thuggish lawlessness with pseudo-intellectual Marxist gibberish hardly makes him or his regime praiseworthy.


 George Will’s wise skepticism of Uncle Sam meddling both in the domestic economy and in foreign affairs distinguishes him as one of today’s very few pundits who isn’t schizophrenic about the perils of power

 Most modern “liberals” believe that domestic economic problems are caused chiefly by unsavory characters – “business people” – who impose their destructive rule on masses of innocent workers and consumers yearning for more prosperity, and that the best solution to these problems is government force deployed using armies of regulators to subdue these bad guys and to keep close watch over them and their successors.  Failure to intervene is immoral.  These same “liberals,” though, believe that foreign problems are typically the result of complex forces that can be understood only poorly by American-government officials; it is naïve to suppose that even well-intentioned foreign intervention by Uncle Sam will not have regrettable unintended consequences.

Most modern conservatives believe that domestic economic problems are typically the result of complex forces that can be understood only poorly by government officials; it is naïve to suppose that even well-intentioned economic intervention by Uncle Sam will not have regrettable unintended consequences.  These same conservatives, though, believe that problems in foreign countries are caused chiefly by unsavory characters – “dictators” or “tyrants” – who impose their destructive rule on masses of innocent people yearning for more democracy, and that the best solution to these problems is government force deployed with armies of soldiers to subdue these bad guys and to keep close watch over them and their successors.  Failure to intervene is immoral.

Talk about a conflict of visions.

My media week 29/05/11

May 28, 2011

BBC’S Great Lives had a profile of Harold Pinter featuring critic and biographer Michael Billington and Diane Abbott MP, who chose him for her great life. Her contention that he was right on every big political question is not one I share.

The RSA featured a talk by philosopher Julian Baggini looking at what the self is: What Does it Mean to be You?

In his blog Frontal Cortex Jonah Lerner looks at memory reconsolidation: Ads Implant False Memories

According toThe Daily Mash the recent threat of the End of Days would have made little difference to Britain: Biblical apocalypse leaves much of Britain unchanged.

Sex, lies and man-eating sharks: British deception in WWII

May 22, 2011

All war is deception. Sun Tsu

In wartime, truth is so precious that she should always be attended by a bodyguard of lies. Stalin

Who in war will not have his laugh amid the skulls? Winston Churchill


In an 1865 speech inOakland,California, Rev. W. B. Brown ofNew Jerseyquipped that the reason the sun never set upon the Empire was that God did not trust the British in the dark. If we examine military history, the Almighty may well have been right to be wary of the British. The First World War had seen a number of ruses for fooling the enemy – camouflage, snipers hidden in fake trees, booby-trapped corpses and so on.  But it was in the Second World War, with the enthusiastic backing of Winston Churchill, when secret army of deceivers elevated duplicity to an art form. Military men are not generally known for thinking outside the box, so they received help from a talented group of scientists, artists, novelists and even a circus owner. They operated with a mixture of ruthlessness, naiveté, incompetence and British eccentricity.

The principal organisation responsible for this strategy was the Political Warfare Executive (PWE). This cloak-and-dagger outfit, which was accountable to the Foreign Office, was set up in 1941. Its main headquarters was at Woburn Abbey withLondonoffices located at the BBC’s Bush House. The organisation was governed by a committee which included such political luminaries as Anthony Eden, Brendan Bracken and Hugh Dalton. Its staff was drawn from the Ministry of Information, the propaganda elements of the Special Operations Executive, and the BBC.

These professional liars had to produce and disseminate both white and black propaganda, with the aim of damaging enemy morale. Black propaganda, which is associated with covert psychological operations, is false information and material that purports to be from a source on one side of a conflict, but is actually from the opposing side. On the other hand, in white propaganda there is no attempt to hide the origin. They employed two main propaganda weapons. One was radio – the PWE created a number of clandestine radio stations to broadcast to the enemy. Aspidistra was a British radio station used for black propaganda. When a targeted transmitter switched off, Aspidistra began transmitting on its frequency, initially retransmitting the German network broadcast as received from a station that was still functioning. German listeners would think that the original station was still broadcasting. Then the Aspidistra operators would start inserting demoralising false content and pro-Allied propaganda into the broadcast. This kind of access to German ears was an in invaluable tool. The second weapon was the printing press. Along with their American counterparts, the Office of War Information (OWI), they dropped some 250 million leaflets over Nazi Germany. They were also involved in forging banknotes and ration cards. They also engaged in more bizarre operations. When the Germans were preparing Operation Sea Lion, the plan to invade theUnited Kingdom, they spread rumours that the British had imported 200 man-eating sharks to defend the British coastline.

There were many remarkable wartime characters. One who immediately springs to mind was a conjuror called Jasper Maskelyne. This magician and inventor founded the Magic Gang, a secret group whose aim was to use artifice to fool the enemy. His most grandiose illusion was concealing Alexandria from German bombers. He built a mock-up of the city of the three miles away with fake buildings, lighthouse, anti-aircraft batteries and night-lights. He deployed giant revolving mirrors to hide the Suez Canal. He wanted to dazzle and disorient enemy pilots so that their bombs would fall off-target. The Magic Gang also built fake submarines, trucks and planes. Before the Battle of El Alamein the allies wanted to make German Field Marshal Erwin Rommel think that the attack was coming from the south when British General Bernard Montgomery was actually going to attack from the north. In the south they made 2,000 fake tanks with convincing pyrotechnics. But they didn’t limit themselves to tanks. Just about everything else was faked too: including a railway line and a water pipeline, creating the impression that it would never be ready before the attack. Meanwhile in the north, 1,000 tanks were disguised as trucks. According to my military source, aka Nicholas Gomez, Maskelyne’s contribution to the victory atEl Alamein was decisive. Alas, the story has a sad ending. The Magic Gang was disbanded after the battle and, although he received plaudits from Winston Churchill, he never received the official recognition he felt he was entitled to. He made an unsuccessful attempt to resurrect his stage career, but he died an embittered alcoholic.

Another larger-than-life character was Charles Fraser-Smith who was to become the Inspiration for the Ian Fleming creation Q. He was officially a civil servant working for the Ministry of Supply’s Clothing and Textile Department. In reality, he developed and supplied gadgets and other equipment for section XV ofBritain’s World War II intelligence organization, the Special Operations Executive. His first order was to counterfeit Spanish Army uniforms for a proposed SOE plan to infiltrate agents into neutral Spain to try to stop it entering the war on the Axis side. He graduated from this to sophisticated gadgetry including miniature cameras inside cigarette lighters, steel shoelaces that doubled as garrottes, shaving brushes containing film, and an asbestos-lined pipe for carrying secret documents. However, his greatest contribution to the war effort was surely garlic-flavoured chocolate, which secret agents could chew while parachuting into occupiedFranceto ensure their breath smelt convincingly French on arrival.

My final character is Sefton Delmer, who described himself as His Majesty’s Pornographer. The tabloid journalist had actually been born inBerlin. He believed that there could be no holds barred in this struggle. For Delmer there was no Geneva Convention in black propaganda. Everything was permissible:

We are waging against Hitler a kind of total war of wits. Anything goes, so long as it serves to bring nearer the end of the war and Hitler’s defeat. If you are at all squeamish about what you may be called upon to do against your own countrymen you must say so now. I shall understand it. In that case, however, you will be no good to us and no doubt some other job will be found for you. But if you feel like joining me, I must warn you that in my unit we are up to all the dirty tricks we can devise. No holds are barred. The dirtier the better. Lies treachery, everything.

His strategy could be summed up in one word – sex. The Nazis had already used this tactic successfully. Now he was going to beat them at their own game. He spread fantasies of rape, perversion, and sex. As a journalist covering the fighting inFrance, Delmer had had a revelation. He noticed that troops would immediately throw away enemy propaganda. But the pornographic stuff was kept, re-read, and passed from man to man. Delmer decided to use leaflets and radio. He created a fictitious character known as Der Chef, a proud, highly patriotic Prussian officer. He would undermine Hitler not by opposing him, but by pretending to be a fervent supporter of the Fuehrer and his war. However he would slag off the SS. Delmer set out to portray the SS as depraved, corrupt and only interested in themselves.  It was classic divide and rule.

Sex became the way to keep the Germans hooked. Here is an example of this kind of titillation:

And now some information about the swinish, filthy tricks the enemy are using to try and extract information from our boys in the Luftwaffe who have been unlucky enough to be shot down and captured. When the usual methods of interrogation fail, some of our airmen have been stripped naked and tied to the floor in a gymnasium at the interrogation centre. While they are in this humiliating position, a young and beautiful woman is sent into the room. Our reports say that invariably the woman has long hair. This young woman who is only partially dressed. But that sort of thing people weren’t used to it. So one comrade would say to the other – unbelievable have you heard this thing on the air, there is someone telling absolutely 100 per cent dirty and funny dirty stories. She then positions herself on a gymnastic bar above the prisoner. She then swings herself over the bar and lets down her long hair and then she trails her soft hair back and forward, back and forward, over the naked bodies of our young airmen. After some minutes of this some prisoners will babble anything.

Delmer wanted the German soldiers to feel that while they were on the front wives and daughters were being raped. He played the race card playing on the German ideas of racial purity to create a psychosis:

Today there are more than ten million sexed-up, randy foreigners in all parts of the country. And your wives feel lonely. Throw the Foreign workers out. End the war.

Delmer’s methods were not to everyone’s liking. On hearing a leaked account of one propaganda story, an orgy involving a German admiral, his mistress, four sailors and a helmet, Sir Stafford Cripps, the Lord Privy Seal was furious. He approached Anthony Eden demanding that these broadcasts be stopped. He felt that this “beastly pornography” was contrary to everything thatBritain was fighting for. He went on to say:

If this is the sort of thing that is needed to win the war, why I’d rather lose it.”  I beg to differ.

Delmer’s war of sex propaganda cost him the love of his life Isabelle Nicholas., aLondonartist who was a friend of Picasso. She left him just before D-Day. She couldn’t face living with this man any more. Looking back Delmer felt ambivalent about what he had done. He talked about looking into the mirror and feeling like Dorian Gray seeing his moral degeneration reflected.

This post has turned out different to what I had originally envisaged. This is the beauty of the internet – it takes you in directions you hadn’t thought of. I had thought about talking about those eccentric British. But I then discovered the story of Sefton Delmer. I guess that in the big scheme of things these deceptions are not so important. Nevertheless, they are fascinating stories in their own right. And these men and women did play their part in defeating Hitler.

Gamification and other new words

May 22, 2011

Here is another selection of new words I found on the Wordspy website:


A diet that a bride uses to lose weight before her wedding day.


A person who uses digital tools and techniques to avenge a crime.

disconfirmation bias

The tendency to accept supportive evidence of a belief uncritically, but to actively refute or discount evidence that challenges that belief.


Writing that appears to be objective journalism, but is actually a marketing piece designed to promote a specific brand.


The use of game-related concepts in non-game websites and applications to encourage users to perform actions desired by the business.


A Muslim woman who dresses fashionably but modestly, in accordance with her religious beliefs; a person who designs fashionable clothing for Muslim women.

lawnmower parent

A parent who tries to smooth his or her children’s paths through life by solving their problems for them.

man drought

A relative shortage of eligible bachelors in a particular area.

pancake people

Internet users who read widely, but without depth.


A high school girl who, while planning for her prom, becomes exceptionally selfish, difficult, and obnoxious.


Mobile phone apps that combine social networking and location data. [Social + location (or local) + mobile.]


The stage in a young college graduate’s life when activities such as marrying and finding a place to live are postponed until a job is found or enough money is saved.

Wi-Fi squatter

A person who lingers in a public location to use its Wi-Fi internet connection, or who uses such a connection without authorization.

zombie lie

A false statement that keeps getting repeated no matter how often it has been refuted.

My media week 22/05/11

May 22, 2011

The National Post looks at William Shakespeare: The most influential man in history.

In this Randian video, The Morality of Profit, Tom Palmer argues that Bill Gates doesn’t have to give back anything because he didn’t steal it.  

Finally The Onion has Government Official Who Makes Perfectly Valid, Well-Reasoned Point Against Israel Forced To Resign.

The fascinating world of V.S. Ramachandran

May 15, 2011

Ramachandran is a latter-day Marco Polo, journeying the silk road of science to strange and exotic Cathays of the mind. He returns laden with phenomenological treasures…which, in his subtle and expert telling, yield more satisfying riches of scientific understanding. Richard Dawkins

V.S. Ramachandran, director of the Center for Brain and Cognition at the University of California, San Diego was lecturing at a hospital in India, when a young man with a strange problem approached him:

I am a corpse—I can smell the stench of rotting flesh.

Are you saying you are dead?

Yes. I don’t exist.

His diagnosis was that the young man was suffering from Cotard syndrome or walking corpse syndrome, a rare mental disorder in which people believe that they are dead. Welcome to the world of V.S. Ramachandran.  Vilayanur Subramanian Ramachandran was born into the Brahmin caste in Tamil Nadu, Indiain 1951. The Indians like the Chinese put the surname first and so Vilyanur is actually the family name. Ramachandran is the name his parents gave him, but I will refer to him by this name for convenience. Ramachandran’s father was a diplomat, so he spent a lot of time between Bangkokand Madras. He obtained a medical degree from StanleyMedicalCollegein Madras, India, and subsequently obtained a Ph.D. from TrinityCollegeat the Universityof Cambridge. Although his early work on visual perception he is best known for his work in behavioural neurology. I first became aware of Ramachandran when he gave the BBC Reith Lectures in 2003, The Emerging Mind. He is a captivating speaker who is able to bring the science of the brain alive.

This year Ramachandran has a new book, The Tell-Tale Brain: A Neuroscientist’s Quest for What Makes Us Human, which explores what makes humans unique and illustrates how brain disorders can help us better understand how our brain actually works. He skilfully builds a picture of the specialized areas of the brain and the pathways between them.  The rationale behind the neuroscientist’s methodology is that if damage to one area causes disruption of a particular brain function, then it is highly probable this is where the function is located. A recurring theme is the way in which many delusions appear to result from the brain trying to make sense of signals that have gone haywire. I have been following Ramachandran since I was blown away by those 2003 Reith lectures. I really enjoyed his latest book and I thought it would be interesting to share a few of his insights with you. Prepare to be dazzled.

A phantom limb is the sensation that an amputated or missing limb is still attached to the body. Sufferers still feel pain even though there is nothing there. This apparently occurs in more than 90% of cases. Such limbs often arrange themselves into painful positions. Ramachandran believes that phantom limb sensations are due to crosswiring in the brain. He relates how by touching a patient’s face, you can actually alleviate the pain in a phantom hand. This can be explained by the fact that the areas which deal with nerve inputs from the hand and face happen to be next to each other. Facial inputs spill over to the area that maps the phantom hand.

Ramachandran has a reputation for low-tech solutions, such as boxes and mirrors. His revolutionary technique was shown in one episode of House. The acerbic doctor is having problems with one ofWilson’s neighbours, Murphy, a decorated war hero who lost an arm in combat. House breaks into the neighbour’s home, where he drugs him, ties him up and gags him. He then gets Murphy to put his stump and his normal hand into a cardboard box, whose top and front surfaces have been removed There is a mirror inside and it now appears that Murphy has both arms. House tells him to clench his real and phantom hand and then to let them both go. For the first time in 36 years Murphy realizes he no longer feels pain in the phantom limb and he sobs in relief.

In the chapter on vision we hear about the Capgras delusion, in which friends or relatives are seen as impostors. This can happen when sufferers see their mothers. Their eyes are working perfectly; they have no trouble with facial recognition. The problem is with the connection with the amygdala, the part of the brain which deals with emotional response. As they feel no affective response, their brain tells them they are dealing with an imposter. Blindsight is a condition in which a person who is effectively blind because of damage to the visual cortex, can make correct visual judgements. The most incredible of case of this was TN, a man left blind by a stroke. Despite this, he was capable of negotiating a maze, walking around chairs and boxes without bumping into them. The explanation is that visual information travels along two pathways: the old pathway and the new pathway. If only the latter is damaged, a patient may lose the ability to see an object but still be aware of its location and orientation.

Ramachandran looks at synaesthesia, a neurologically-based condition in which stimulation of one sensory or cognitive pathway leads to automatic, involuntary experiences in a second cognitive pathway. The most well known form makes people see numbers as colours. This is not some kind of vague association, but is very intense feeling. Ramachandran ponders the connection between synaesthesia and creativity, especially metaphor. It is eight times more common in artists, poets, and novelists, than among the general population. Curiously, blind people can also have this condition – Stevie Wonder is one famous example

One thing I learned from the book was about mirror neurons, which were discovered in the 1990s by Giacomo Rizzolatti. For over 50 years scientists had known about the ordinary motor command neurons at the front of the brain. When you to reach out and grab something, they orchestrate a specific sequence of muscle twitches. What Rizzolatti discovered was that around 20% these neurons, will also fire when you see somebody else performing the same action. This neuron is adopting the other person’s point of view; it’s like a virtual reality simulation of the other person’s action.

Ramachandran boldly describes them as the neurons that shaped civilization.  Culture is the accumulation of complex skills and knowledge which are transferred from person to person through language and imitation. Ramachandran believes that these mirror neurons are vital for imitation and emulation. The emergence of such a sophisticated mirror neuron system, which allowed us to copy other people’s actions, was essential for the diffusion of human culture. Without our incredible savant-like ability to imitate others, human behaviours and discoveries could not have spread so rapidly. This diffusion occurs within societies and quickly spreads to other areas. Moreover, these skills can be passed onto future generations.

Ramachandran also wants to find a science of art. This kind of work is always going to be a bit controversial always open to the charge of reductionism.  He is interested in the evolution of our aesthetic sense. He lists nine artistic universals. He believes our taste is heavily influenced by our evolutionary ancestry on the African savanna. We like similarly coloured things to go together, and we are entranced by certain kinds of exaggeration of ordinary reality or other unrealistic images, like the Venus of Wiltdorf.

I do recommend that get to know more about Dr Ramachandran. You can do this with his books. You can still listen to his 2003 Reith lecture a couple of his talks are still available at the TED website. Neuroscience is still in its infancy. Ramachandran believes that we are now at the same stage that chemistry was in the nineteenth century: discovering the basic elements, grouping them into categories, and studying their interactions. We are still grouping our way toward the equivalent of the periodic table but are not anywhere near atomic theory. The brain is such a complicated organ. Some of what he says is necessarily speculation and other things may ne shown to be false. That is the way science works. And I actually like it when scientists look at phenomena that are outside their traditional purview. We have the testimony of novelists, poets and philosophers who have tried to pin down what it means to be human. We should give the scientists a chance.

Mental health glossary

May 15, 2011

The Tell-Tale Brain has an excellent glossary at the back. Here are a few of the terms he defines:

AGNOSIA A rare disorder characterized by an inability to recognize and identify objects and people even though the specific sensory modality (such as vision or hearing) is not defective nor is there any significant loss of memory or intellect.

ALIEN-HAND SYNDROME The feeling that one’s hand is possessed by an uncontrollable outside force resulting in its actual movement. The syndrome usually stems from an injury to the corpus collosum or anterior cingulate.

AMNESIA A condition in which memory is impaired or lost. Two of the most common forms are anterograde amnesia (the inability to acquire new memories) and retrograde amnesia (the loss of preexisting memories).

ANOSOGNOSIA A syndrome in which a person who suffers a disability seems unaware of, or denies the existence of, the disability. (Anosognosia is Greek for “denial of illness.”)

APHASIA A disturbance in language comprehension or production, often as a result of a stroke. There are three main kinds of aphasia: anomia (difficulty finding words), Broca’s aphasia (difficulty with grammar, more specifically the deep structure of language), and Wernicke’s aphasia (difficulty with comprehension and expression of meaning).

APOTEMNOPHILIA A neurological disorder in which an otherwise mentally competent person desires to have a healthy limb amputated in order to “feel whole.” The old Freudian explanation was that the patient wants a large amputation stump resembling a penis. Also called body integrity identity disorder.

APRAXIA A neurological condition characterized by an inability to carry out learned purposeful movements despite knowing what is expected and having the physical ability and desire to do so.

ASPERGER SYNDROME A type of autism in which people have normal language skills and cognitive development but have significant problems with social interaction.

AUTISM One of a group of serious developmental problems called autism spectrum disorders that appear early in life, usually before age three. While symptoms and severity vary, autistic children have problems communicating and interacting with others. The disorder may be related to defects in the mirror-neuron system or the circuits it projects to, although this has yet to be clearly established.

BIPOLAR DISORDER A psychiatric disorder characterized by wild mood swings. Individuals experience manic periods of high energy and creativity and depressed periods of low energy and sadness. Also called manic depressive disorder.

BLINDSIGHT A condition in some patients who are effectively blind because of damage to the visual cortex but can carry out tasks which would ordinarily appear to be impossible unless they can see the objects. For instance they can point out an object and accurately describe whether a stick is vertical or horizontal, even though they can’t consciously perceive the object. The explanation appears to be that visual information travels along two pathways in the brain: the old pathway and the new pathway. If only the new pathway is damaged, a patient may lose the ability to see an object but still be aware of its location and orientation.

CAPGRAS SYNDROME A rare syndrome in which the person is convinced that close relatives—usually parents, spouse, children or siblings—are imposters. It may be caused by damage to connections between areas of the brain dealing with face recognition and those handling emotional responses. Someone with Capgras syndrome might recognize the faces of loved ones but not feel the emotional reaction normally associated with that person. Also called Capgras delusion.

COTARD SYNDROME A disorder in which a patient asserts that he or she is dead, even claiming to smell rotting flesh or worms crawling over the skin (or some other equally absurd delusion). It may be an exaggerated form of the Capgras syndrome, in which not just one sensory area (such as face recognition) but all sensory areas are cut off from the limbic system, leading to a complete lack of emotional contact with the world and with oneself.

KORO A disorder that purportedly afflicts young Asian men who develop the delusion that their penises are shrinking and may eventually drop off. The converse of this syndrome—aging Caucasian men who develop the delusion that their penises are expanding—is much more common (as noted by our colleague Stuart Anstis). But it has not been officially given a name.

PHANTOM LIMB The perceived existence of a limb lost through accident or amputation.

SYNESTHESIA A condition in which a person literally perceives something in a sense besides the sense being stimulated, such as tasting shapes or seeing colors in sounds or numbers. Synesthesia is not just a way of describing experiences as a writer might use metaphors; some synesthetes actually experience the sensations.

TEMPORAL LOBE EPILEPSY (TLE) Seizures confined mainly to the temporal lobes and sometimes the anterior cingulate. TLE may produce a heightened sense of self and has been linked to religious or spiritual experiences. The person may undergo striking personality changes and/or become obsessed with abstract thoughts. People with TLE have a tendency to ascribe deep significance to everything around them, including themselves. One explanation is that repeated seizures may strengthen the connections between two areas of the brain: the temporal cortex and the amygdala. Interestingly, people with TLE tend to be humorless, a characteristic also seen in seizure-free religious people.

My media week 15/05/11

May 15, 2011

On EconTalk this week economist Bryan Caplan presented his new book, Selfish Reasons to Have More Kids. His take on parenting is very different to the tiger mothers and their tough love:

“Quit fretting over how much TV your kids watch. Don’t force them to do a million activities they hate. Accept that your children’s lives are shaped mostly by their genes and their own choices, not by the sacrifices you make in hopes of turning them into successful adults.”

Craig Brown doesn’t like Scrabble – Let me spell it out… I just hate Scrabble.

In this ABC Future Tense podcast Brian Christian has some interesting things to say about AI and what it means to be human in an era of such rapid technological change: The most human human.

On the Freakeconomics blog Tim Harford argues for the importance of failure. He compares the astonishing failure rate of Silicon Valley with Detroit, where the big three carmakers go on for ever:  Failure: It’s Everywhere

Shit happens: the rise of the insurance industry

May 8, 2011

Insurance: An ingenious modern game of chance in which the player is permitted to enjoy the comfortable conviction that he is beating the man who keeps the table.  Ambrose Bierce

What the insurance companies have done is to reverse the business so that the public at large insures the insurance companies.  Gerry Spence

The Act of God designation on all insurance policies; which means, roughly, that you cannot be insured for the accidents that are most likely to happen to you.  Alan Coren

There are worse things in life than death. Have you ever spent an evening with an insurance salesman?  Woody Allen


Insurance plays a central role in the functioning of the modern world. Shit happens and we want to be prepared for adversity. The idea of saving for a rainy day is a basic financial impulse. The largest share of the insurance cake is for cars. We also insure our homes our pets and our lives. Then are those celebrities who insure body parts. I get the impression that many of these celebrity body-part insurance contracts, such as Tom Jones and his $7 million chest hair policy are just urban myths or publicity stunts. Insurance has also been the subject of many films: Double Indemnity, The Apartment, Memento, The Thomas Crown Affair and The Rainmaker to name but a few.

The rationale behind insurance is to transfer risks to where they can be borne at a lower cost. The insured pays a small premium in order to receive benefits should an unlikely but high-cost event occur. As they insure millions of homes, insurance companies are able to play with the predictability of large numbers. They are able to set aside resources more efficiently. This actually benefits the economy as a whole as  resources are freed up to be used in other areas.

As long ago as the 3rd and 2nd millennia BCE the Chinese Babylonian traders were transferring or distributing risk. The Chinese would use a large number of ships to limit the loss due to any single vessel’s capsizing. If a merchant received a loan to fund his shipment, he would pay the lender an additional sum in exchange for the lender’s guarantee to cancel the loan should the shipment be stolen. The Greeks and Romans had guilds called benevolent societies which looked after the families of deceased members, as well as paying funeral expenses of their members. This kind of institution was also typical in Medieval Europe. The first insurance contracts date from 14th centuryItaly, but it was not until the invention probability theory and actuarial science in the 1600s that insurance really began. Before these great intellectual developments offering insurance was a gamble. Now the insurance companies would become the casino.

After the great fire of Londonfire insurance began to be sold and marine insurance was available at Edward Lloyd’s coffee house. In 1744 acouple of hard-drinking Scottish Presbyterian ministers Robert Wallace and Alexander Webster set up the first true insurance fund in 1744. They created The Scottish Ministers’ Widows Fund to take care of the widows and orphans of deceased ministers. They soon realised that merely collecting premiums that it as also necessary to invest the money wisely. They based their calculations on an accurate projection of how many beneficiaries there would be in the future, how long ministers might live and how much money could be generated to support their dependants after they died. Now Scottish Widows plc is a Financial Services company, whose assets under management were worth £145.5bn in September 2010. In the 1840s in the United States Morris Robinson, the head of Mutual Life of New York had the idea of employing highly-paid life insurance salespeople. He wanted them to form long-term relationships with their clients. Now insurance is multi-billion dollar industry. In developed countries it accounts for around 10% of GDP.

The problem of asymmetric information between the seller of insurance and the buyer creates what economists call a problem of adverse selection. Those high-risk individuals, who know more about their risk profile than the insurers, will create a mix of clients which is adverse to the insurer. Insureds who eat poorly or who engage in high-risk professions or sports have an added incentive to take out insurance. Companies attempt to get around these problems. They can try to investigate potential clients. For example, if you want a life insurance policy, you will probably have to undergo a medical exam. But you can never find out everything. The use of predictive genetic tests in setting premiums for life insurance would be extremely controversial and is not an option at the moment. Instead, insurance companies tend to set high rates to make up for this adverse selection. This however is a disincentive for ordinary-clients to take out insurance and fewer of them will, exacerbating the problem

Once an individual or family is insured, new problems emerge. In particular, the insured now has less incentive to avoid the risk of a bad outcome.Moral hazard says that the more you feel insulated from risk, the more temptation you have to engage in risky behaviour. Insured people respond to incentives and undertake actions they would otherwise avoid. And if the insured value is worth double, then the insured actively has an incentive to cause an “accident”. This does not mean that everyone will do – there are moral norms and we are also afraid of being caught – but there will undoubtedly be some who will. We are talking about a continuum here. On one end of the spectrum you have those who are complexly honest. Then there are those who may subconsciously relax forgetting to take all the necessary precautions. At the other end you have those who will provoke a fire in order to claim the insurance. A person with automobile collision insurance, for example, is more likely to go driving on an icy night. Subsidised flood insurance can encourage people to build homes in areas prone to flooding. Insurance companies can try to counter this risky behaviour. They can refuse to insure people in dangerous areas and insurance policies often stipulate that their clients have to pay a fixed amount of the damages incurred before the insurance company pays the remainder. However, given the impossibility of monitoring everything that their clients do, insurance companies just have to accept that once policies are issued more claims will be made.

Insurance often raises question of what is fair. I have already mentioned genetic profiling of clients. One fascinating case is that of driving and gender. The insurance industry’s data actually shows a statistically significant correlation between gender and increased risk.  If women as a whole are less likely to cause accidents, shouldn’t they benefit from lower premiums? Is it legitimate to group people in this way? After a ruling by theEuropean Courtinsurers will now have to charge the same price to all their customers. The effect of this is to punish people who are statistically less likely to claim on the insurance. For the Court the insurance companies were breaching a fundamental human right equality between men and women.

We are all familiar with the insurance contracts and their small print designed to bamboozle their customers. We feel that insurance companies are trying to get out of paying what they should be paying as in The Onion’s spoof headline, “Earthquake-Insurance Provider Suspects Client Of Deliberately Shifting Earth’s Tectonic Plate.” In The Stuff of Thought Steven Pinker talks about the problems about the insurance of theWorldTradeCenter. The disputed centred on exactly how many events took place inNew York on that morning in September 2011. Silverstein’s insurance policy stipulated that he receive $3.5bn for one event and $7bn for two. Swiss Re wanted to argue that it was one incident took place Pinker summed up the dilemma facing the court very well:

“It could be argued that the answer is one. The attacks on the buildings were part of a single plan conceived in the mind of one man in service of a single agenda. They unfolded within a few minutes and yards of each other, targeting the parts of a complex with a single name, design, and owner. And they launched a single chain of military and political events in their aftermath. Or it could be argued that the answer is two. The north tower and the south tower were distinct collections of glass and steel separated by an expanse of space, and they were hit at different times and went out of existence at different times.”

The meaning of the term event became very contentious during the trial. Swiss Re’s attorneys framed it in mental terms – there was one plot. Silverstein’s legal representatives defined it in physical terms –two collapses. In the end Silverstein lost as the court confirmed that the destruction of the WTC in the September 11, 2001 terrorist attacks was a single event.

It is not always the insurance companies who try to hoodwink their customers – insurance fraud is an important cost. We have those extreme cases like John Darwin. The former teacher and prison officer faked his own death. He was reported as “missing” after failing to report to work following a canoeing trip on March 21, 2002. He reappeared on December 1, 2007, claiming to have no memory of the past five years. In reality he had been living under a false name and they ended up inPanama. After returning to England John and his wife Anne were found guilty of fraud and both were sentenced to six years in prison. Charles Gavett fromPike County,Georgia. told authorities that his wife, Cynthia, had died in the attack on theTwinTowersinNew York. He claimed more than $600,000 in life insurance money — but Cynthia was actually alive and well back home. A local deputy sheriff even testified that the Gavetts had invited him over for Thanksgiving — more than two months after her supposed death. Gavett was the first person to be arrested for fraud related to the Sept. 11 attacks. These are exceptional cases but on a smaller scale many ordinary people engage in insurance fraud. When consumers report losses on their homes and cars, they creatively stretch their claims by about 10 percent. Insurance companies then retaliate by raising their premiums.

With the evolution of the financial system the distinction between insurance and other forms of risk management is beginning to get blurred. The bailout of AIG showed how intertwined the two sectors are. And now the insurance industry is facing new challenges. There seem to be more hurricanes and we have also seen the rise of catastrophic terrorism. The future promises to be even more uncertain and eventful.