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Trust, Trust, Trust

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There’s a major bear market right now—in trust.  Or so it seems reading the papers, blogs and broadcast media.  The only bull market to be found is the bull market in talking about the bear market in trust.

So it’s very appropriate for this blog to have a point of overview.

First, a sampling:

This Tuesday, Henry R. Kravis said trust is the"The Single Biggest Factor" in the economic crisis:

Both the Economist and the NYTimes agree that trust is a Big Deal at Davos this year.

Paul Krugman says trust is a big part of the problem.

Robert Reich agrees with Kravis, that what we are facing is "a crisis of trust.”

Edelman’s Trust Barometer dropped precipitously across institutions this past year.  As the FT’s John Gapper  points out, Edelman’s survey suggests “only 49 per cent of Americans, living in the country of capitalism and free enterprise, thought the free market should be allowed to operate independently.” 

So—what does all this mean?  Above all, it means two Big Things:

1.    we are facing a Big Opportunity cleverly disguised as an economic crisis;
2.    at the heart of all trust is personal trustworthiness.

A Big Opportunity Cleverly Disguised as a Trust Crisis.  The academic research on trust is staggering in the breadth of definitions of “trust.”  We trust stoplights, Amazon book reviews, the kindness of (some)strangers, some businesses more than others, neighbors, those we know, those with similar names or facial features or religions—and we trust each in different ways.

How curious that, despite our inability to provide a concise dictionary definition, we nonetheless know from context pretty much what is meant when we use the word.  Which means, to say “trust is down” is not meaningful without context.

Other statements requiring context include “trust takes time,” “trust takes years to build and only a moment to destroy,” and “trust but verify.”   All are true in their place—and not so true outside that place.

Context is critical.

Most trust-talk these days is about institutional trust—the SEC, the institution of business, trust in the media.  Interestingly, it doesn’t take long for attitudes about institutions to change—a charismatic leader (a Pope, a President) can rather dramatically affect trust levels.  (By contrast, it takes much longer to change cultural attitudes toward trusting “others,” or toward strangers.)

All of which means getting the context right is critical.

Trust is Personal.  Former House Speaker Tip O’Neill famously said, “all politics is local.”  So is trust, in the sense that if is unlinked from people, it loses its breadth of meaning. We don’t say we “trust” that the sun will rise in the East, or that the law of gravity will work every time.  We may depend on or predict based on laws of nature; we “trust” people. 

We cannot afford a society based on 18th century models of a competitive state of nature.  We cannot even rely on "the rule of law"–society is too complex.  We cannot afford social constructs based on the suspected evil of others–we need models based on values and standards to which we demand people aspire.

This is a fundamental truth about trust.  In all the debates about institutional trust and the need for regulation, we ignore this truth at our peril. 

At the risk of using the same quote twice in a week: Samuel diPiazza, CEO of PricewaterhouseCoopers, and Robert G. Eccles, a former HBS professor, wrote, in Building Public Trust:

…even transparency and accountability are not enough to establish public trust. In the end, both depend on people of integrity. Rules, regulations, laws, concepts, structures, processes, best practices, and the most progressive use of technology cannot ensure transparency and accountability. This can only come about when individuals of integrity are trying to “do the right thing,” not what is expedient or even necessarily what is permissible. What matters in the end are the actions of people, not simply their words…without personal integrity as the foundation for reported information, there can be no public trust.” 

If there is any common message about trust, this should be it.  The "trust issue" is not fundamentally about disclosure, or process regulations, or even transparency: at root it is, as it always has been, about the personal integrity and trustworthiness of human beings in relationship to each other.

 

Why Attraction is Worth More Than Retention

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The phrase “attraction and retention” is so entrenched in business-talk that a Google search with quotes around the terms turns up 306,000 hits.

That’s a lot. But it’s dwarfed by the active-voiced “attract and retain,” with 2.07 million hits.

If memory serves, the phrase comes out of the “war for talent,” initiated in 1997 by McKinsey.

Was that war ever won? Apparently not. In 2007, Bob Sutton was announcing “The War for Talent is Back.”

In fact, as of just a few months ago, McKinsey was announcing The Return of the War for Talent  (“It’s Baack!”).

But, as of two weeks ago, according to search firm Morgan McKinley, the War for Talent is Over.

The War for Talent has had more comings and goings than Cher has had farewell tours. So it goes with business concepts that mean whatever you want them to mean.

(For a really wonderful read on the abuse of “war for talent,” read Malcolm Gladwell’s article The Talent Myth.)

But I digress. The WFT is fought on two fronts—finding talent, and keeping it. Despite the eerie parallels with roach motels, the language "attract and retain" has stuck.

“Attract” has taken a back seat to "retain," and it’s not hard to see why. Consider the well-established economics of customer loyalty. Employees form relationships and gain hard-to-replace skills, referred to in distinctly non-human terms as “relationship capital.”

Yet, just as the best defense may be a great offense, the best retention strategy may be a great attraction strategy.

For one thing “retention” often lives down to the very behavioral language used to describe it. Think handcuffs, golden or otherwise; do-not-compete clauses; hands-off clauses in search firm contracts. More benignly, flex time and use it or lose it vacations.

But more importantly, think what a really fabulous, unbelievable attraction proposition does for retention. Suppose you had an extraordinary new-hire offer. Tons of money, social good, ambience, benefits, advancement, work-life balance, cachet. Maybe like Google a couple of years ago.

Why would someone leave such a place? Not for money, or promotion, or lifestyle. More typically it’s because their life goals had simply changed.

It happens. Twenty-somethings have kids. Project management loses its appeal after being the meat in too many sandwiches.  You cannot “retain” people whose life goals have shifted. And if you keep only the employment contract, they lose their enthusiasm.

But what about the greatest attraction pitch of all—"We Care about YOU."

If you could believe a firm really cared, if they could prove it to you—wouldn’t you want to join that firm? And stay there, until they were simply incapable of meeting your changed needs?

I’m saying yes, of course you would. They catch is, why would you believe it?

Well, suppose the firm paid a recruiter to hire you away from them? Suppose they paid you massive severance packages should you decide to leave? Suppose they developed alumni programs, like universities with “graduates?”

The really fine consulting firms—Bain & McKinsey, for example—truly value their alumni—you are a lifetime member, you’re just working the client side as an alum.

But even more sharply, think Zappo’s. Here’s one more great Zappo’s article, from Fortune’s January 22 issue 

Zappos bribes trainees to leave.  Few do.  When Zappo’s recently had to lay off 140 people, they were extra-generous in terms of severance. They offered 6 months of paid COBRA health care. And so on.  Remember, these are not people Zappo’s is trying to retain–these are people they’re letting go.

eBay gets it. "How you treat the leavers has a strong impact on how the stayers feel about the company," says Beth Axelrod, eBay’s SVP of human resources. 

Exactly.  How these companies attract—a values-based culture that actually values customers and employees, not just their abstract corporate-finance-centric “relationship capital”—directly drives their success at retention.

Don’t focus on retain—that’s about the company. Focus on attract—that’s about the employee. Then live the values.

It’s the paradox of trust. If you actually set someone else’s priorities above your own, you get back boatloads of what you want.

But only if you’re willing to put your motives second. You actually have to care.

February Carnival of Trust is Up

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The Carnival of Trust for February, 2009 is now up at Ian Brodie’s most excellent blog, Sales Excellence.

As you may know, the Carnival of Trust chooses the Top Ten trust-relevant posts of the preceding month–and provides trenchant, bite-sized commentaries on the posts themselves.  The result is a limited set of highest-quality content.

As host Ian notes, this has been an auspicious period for trust.  He could easily have feasted on scandals and backlash alone, but he has wisely included a mix of inspiring, cautionary and insightful comments along with the Madoff lessons.

Click through to the Carnival and read Ian’s picks-of-the-month on trust.  They range from Dan Rooney (Steelers’ coach), to NLP, to counseling, to Buddhism–to a fine Madoff piece.  All woven nicely with commentary by host Ian Brodie, to whom we are most grateful.

If you’ve got a blog post you’d like to see in that Top Ten list, feel free to nominate it.  The carnival comes out once a month, on the first Monday of each month. The deadline for submissions (see http://blogcarnival.com/bc/submit_1693.html) is always the prior Thursday.

Thanks again to Ian for hosting; pop in for some good reading. 

 

 

 

Wanted: Executives with Integrity, or At Least a Sense of Shame

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I spoke a few days ago with a thoughtful, intelligent ex-management consultant who understands the financial big picture very well. What was his take on the crisis, I asked him?

“The whole thing comes down to a serious misalignment of incentives of all the major players,” he said. “Low interest rates and rising asset prices led banks, lenders, ratings agencies, credit insurance and other markets astray–everyone’s incentives got way out of whack.”

As a description, I buy it. But as a diagnosis, I don’t know whether to be disgusted or depressed. I think I’ll be angry.

“The incentives are out of whack” is the language of behaviorism—appropriate for a Skinnerian stimulus-and-response study of rats and cheese in a maze. Looking at the world through Skinnerian lenses has many virtues—not, however, including the concepts of responsibility or integrity.

In a time of financial faltering and blooming Ponzi schemes, this matters enormously. We have a once in a decade chance to alter the trustworthiness and ethics of the financial industry.

Will our new financial regulators view this as a chance to redraw the maze and manage the cheese distribution? Or will they also focus on restoring integrity?

How bad is it? Another friend told me about a conversation between an investment banker and a regulator—the banker said, with a sly wink, “You know, you folks shouldn’t be letting us get away with this.”

“Letting us get away with this?” Who put the gun in your hand? Who raised the drink to your lips? Who do these people think is responsible for their actions? The chief behavioral scientist at the SEC?

Just 7 years ago, post-Enron, Samuel diPiazza, tCEO of PricewaterhouseCoopers, and Robert G. Eccles, a former HBS professor, wrote, in Building Public Trust:

…even transparency and accountability are not enough to establish public trust. In the end, both depend on people of integrity. Rules, regulations, laws, concepts, structures, processes, best practices, and the most progressive use of technology cannot ensure transparency and accountability. This can only come about when individuals of integrity are trying to “do the right thing,” not what is expedient or even necessarily what is permissible. What matters in the end are the actions of people, not simply their words…without personal integrity as the foundation for reported information, there can be no public trust.”

Exactly.

Trust, integrity, and ethics are essentially about the link between individuals in society. Not between rats and cheese.

It must be tempting for Mary Schapiro, new SEC head, to respond to the political howling with a new Sarbanes-Oxley. Please don’t. As Jim Peterson says, “Any law that passes the US Senate 99 to 1 has got to be seriously flawed.”

What we don’t need more of is behavioralism–more paperwork, detailed regulations, disclosures, and Chinese walls. What we need more of is what diPiazza said—trustworthiness and integrity. On the regulatory side, that means better enforcement and sanctions.

But politics are critical too, and fulminating politicians can be as short-term focused as any banker. The public has a big role to play.

May I suggest shame, humiliation, and public shunning. Maureen Dowd has made a nice beginning  but everyone needs to pile it on.

Consider two contrasting headlines yesterday:

Ford Has Worst Year Ever But Won’t Ask For Aid

and

What Red Ink? Wall Street Paid Hefty Bonuses.

Which one is about mice, and which about men?

Get mad as hell about this.  Go shame a Wall Street banker today–we expect people to feel shame, not rats, so their response should tell us something.

 

 

Envy, Resentment and Trust

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Resentment is like taking poison—and waiting for the other person to die. 

Sounds absurd, but anyone who’s honest will recognize not only the absurdity of that stance, but the fact that we nonetheless indulge in it all too often.

Then there’s resentment’s close cousin envy.  “Envy is the ulcer of the soul,” said Socrates.  The parallel metaphors of ulcers and poison are not accidental.  They are internally corrosive issues masquerading as external.

I want to highlight two other writers whom I find do a wonderful job of exploring the darker regions of the soul. One is Phil McGee; the other is Peter Vajda.  Both have commented on this blog from time to time.

Here are a few choice comments from each on the subject.  Peter’s comments come from  “I Want What You Have.”  Phil’s come from his post "Three Men."   
I recommend reading both in the original. 

Here is a taste, in alternating call-and-response format:

In the throes of envy, we become mired in a sense of lack and deficiency. And, like an ulcer, envy eats away at you, consciously and subconsciously. It seems to be the energy that is running your life – a life of frustration – feeling like you’re being decimated from the inside out.  Peter Vajda

He was the oldest of the group and the ring leader and most of the people in the room seemed to respect and care about him. He was, therefore, the target of my jealousy and dislike. Phil McGee

The honest reality with envy is that it’s never – repeat never – about the other person. Envy can be a blind spot. As Pogo said, “We have met the enemy and he is us.” Few folks realize they are their own worst enemy when it comes to envy.

He had, I came to realize, a sharp wit and great sense of humor and he enjoyed life, a feeling rare in me until I began to question why I disliked so many people instead of wondering what was wrong with me. Somewhere inside I knew I was cheating myself and that I was afraid of getting close enough to feel the rejection that was sure to come.

While focusing outward on what others have, the envious one is also dwelling on “what’s wrong with me.” In this place of self-loathing and self-pity, when we feel “less than”, we tend to focus on what we don’t have. Lack attracts lack. Caught in a downward spiral of envy, you move backwards, sowing seeds of doubt and limiting your potential.

Les…helped me to see that I was wrong about people. They really don’t exist for the sole purpose of making my life miserable. Actually when I seek their friendship and counsel and am open to them it seems they will do anything to help me see the light of love rather than the blind darkness of fear and resentment.

You can decide to not be envious or jealous. It is a choice.

Indeed it is. And choosing to be free of envy and resentment makes you able to trust, as well as trustworthy.

Thanks,Phil and Peter.
 

Interview with Charles Green at Dave Stein’s Blog: I Would Buy From this Guy

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Dave Stein has posted an interview with me (along with some kind words) in his post, I Would Buy From This Guy. 

First, thank you, Dave.  (And special thanks to Jill Konrath for echoing the sentiment!). It’s an honor.

As I’ve gotten to know Dave,  I am struck by his solid instincts of commonsense and integrity–and by the breadth of knowledge and experience in the sales industry.  He has been a sales consultant, trainer, author, blogger, and networker.  Everywhere I turn in the sales arena, people seem to know Dave,  and at every contact I have with him I am impressed with his insights and wealth of knowledge.  I appreciate the honor of his comments.

Check him out at his company, ES Research Group.  You won’t regret.

 

 

I Have Done Nothing Illegal

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You know the old joke: “Legal ethics is an oxymoron.”

Now, it may or may not be that lawyers are disproportionately ethically challenged. But the real oxymoron is not about lawyers—it’s about the legal-ization of ethics.

An act can be immoral or unethical without being illegal. And the absence of illegality does not make an act moral. This should not be a hard concept to grasp.

Yet, there is no shortage of businessmen and politicians who aggressively assert legal non-guilt as if it could mask the stench of grossly unethical behavior.

Googling “I have done nothing illegal,” and variations on the theme, provides such gems as these:

Illinois Governor Rod Blagojevich—“I’m here to tell you right off the bat that I am not guilty of any criminal wrongdoing.”

New York’s former State Senate Majority Leader Joseph Bruno, responding to a damning indictment, sounds like the ex-boxer he is, saying
“After being hounded for three years, I am being indicted on a prosecutor’s sleight of hand.” Bruno insults an entire profession by calling millions of dollars in sales-commissions-or-is-it-kickbacks “consulting fees.”

Remember Senator Alan Cranston of the Keating Five? Talking to congress, he said, “You know that I broke no law.”

Enron’s Jeff Skilling testifies that he and Lay never broke the law.

Confirming their virtue, his buddy Ken Lay said: “We don’t break the law.”

Former New Jersey Senator Robert Torricelli, explaining the scandal that led to his resignation: “…had not denied taking gifts from Mr. Chang, but said that he took no ‘illegal gifts’…”

Back in 2006, San Jose’s mayor Ron Gonzales kept it simple. Indicted for fraud, bribery and conspiracy, he said “I broke no law.”

Lousiana’s former Governor Edwin Edwards, being charged with $1M in racketeering and extortion said, ”I know I didn’t break any Federal laws.”

Really blurring the ethics/law boundaries, Pennsylvania State Senator Fumo’s 2007 response to a 139-count Federal indictment was, “I know in my heart that I have not done anything illegal.”

Over on Long Island, the late Republican Joseph Margiotta was convicted of federal mail fraud and conspiracy charges in a municipal insurance kickback scheme, and served 14 months. Even then, he explained, “I didn’t break any law.”

When Don Imus was brought back to the air from the racist dead, part of the rationale for it, as provided by the CEO of Citadel Broadcasting was, you guessed it, “he didn’t break the law.” So I guess all that other stuff—no biggie.

I can’t wait to hear from Madoff. His scam deftly sought out legal vacuums. So if and when he says, “I’ve broken no laws,” it’s important we remember he’s still a sociopathic ripoff artist.

When someone says, “I didn’t do anything illegal,” you can bet your bottom dollar they did two things wrong. One was the scam itself.

The other is worse. They have demeaned both the law and ethics.

The law cannot and should not substitute for ethics. For one thing, it puts an unsupportable load on the law—and lets unethical and immoral people off the hook.

Worst of all, it equates moral arguments to whining complaints made to third parties. That’s a recipe for abdicating personal responsibility. You can’t trust people who have no inner moral compass. A thief with a legal loophole is still a thief. A con artist with a good lawyer is no less a con artist.

That is the true meaning of “legal ethics is an oxymoron.”

When someone to whom we entrust our life savings or our political leadership acts badly, and then defends himself by saying,“I broke no law,” they should be shunned and shamed—outed and shouted—exposed to derision and disgust in all forms of public dialogue. Not to mention voted out or fired.

Bruno, Blago and Bernie ought to be ashamed of themselves. If they can’t even manage that, their status in court has no claim on our judgment.

The Path of Redemption Leads to Trust

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Let’s take a break from Madoff, academics, and business processes.  Let’s go way inward and talk about redemption.

In 1997, Robert Duvall’s The Apostle won many nominations and awards.  It features a jagged but dead-on role by Farrah Fawcett, and the best work I’ve ever seen Billy Bob Thornton do.  But mostly, it’s Duvall.

Some reviewers can’t find the redemption in it.  I think it’s about nothing but.

Duvall’s character is a sinner of every sort—a cheating, lying, womanizing and self-congratulatory preacher.  In a fit of rage, he unintentionally kills his soon-to-be-ex-wife’s boyfriend, and sets out on the lam in the deep rural south, calling himself “The Apostle E.F.”

What follow is a series of epiphanies for him.  At every turn of his life, he rediscovers the beauty in life and other people, and in serving them—at the same time realizing with horror how deeply he had sinned.  And at each turn, the consequences of his sin catch up with him. 

He is forced to move on to another place, where again he gains a new insight, again realizes the depths of his sin, and again accepts the consequences of his sin by being forced out of yet another home.

It ends with him working on the chain gang, yet praising the Lord.  Because for every realization of his sin, he knows he grows to a greater appreciation, and becomes more willing to do the right thing.  Every step down represents more learning, humility and dedication to service.

Something like that happens in the last of the Carlos Castaneda Don Juan series, Journey to Ixtlan.  Don Juan and Don Jenaro explain that because they are magical warriors who can see things others can’t, they also cannot be understood by mere mortals. In a palpable sense, they can not go home to Ixtlan anymore.  Yet offered the same choice again—to learn and be alone, or to be common but together, they would choose the lonely life of the magician.

William James, in Varieties of Religious Experience,  wrote about the “once-born” and the “twice-born.”

The once-born has always led a life of quiet faith. The twice-born, by contrast, knows what hell looks like, having been there, and so appreciates the difference. 

I think Duvall, Castaneda and James all spoke the language of redemption.    The religious sense of “redemption” is delivery from evil or sin.  It has a strong sense of “now I know what I never knew before, and I know it to be true in a way I never knew before.”

* Redemption is a complete change of perspective.  Redemption means “I have seen the light,” or, more colloquially, “holy crap, I never realized.”

* Redemption is what the Angel Clarence teaches Jimmy Stewart in Bedford Falls, and Ebenezer Scrooge in London. 

* Redemption is why alcoholics will ignore priests and spouses, but listen to a fellow alcoholic—they’ve been there and seen the light.

* Redemption is the ultimate act of empathy.  It is about radically revising ourselves to see another reality. 

Redemption alone isn’t sufficient to trust someone.  Ex-smokers, for example, can be giant pains-in-the-butt because they’ve exchanged one cause for another.

But it’s a powerful start.  The ability to see (at least) two sides of a coin is the foundation of getting along with others.  And thence to trust.

The Trouble with Buying Processes

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Big companies have a process for buying things. They define the specs, they shop the vendors, they use specialized purchasing departments to define procedures and processes.

They have similar processes for recruiting human capital (aka human beings). Define the specs, shop the vendors, use special processes.

And ditto for selling. Define targets, channels, measure hit rates, etc.

What these processes all have in common is a focus on the efficiency of the process—and not so much on the effectiveness of the result.

Purchasing managers, HR recruiters and sales managers alike would benefit from Malcolm Gladwell’s recent New Yorker piece title Most Likely to Succeed: How Do We Hire When We Can’t Tell Who’s Right for the Job?

Gladwell’s opening metaphor is about predicting the success of a college football quarterback in the pro game. Despite extraordinary efforts at analytical and statistical rigor—you just never quite seem to know.

His target subject is teaching—how difficult it is to predict the success of a teacher by focusing on any available statistical predictor.

Yet the value of getting it right is huge. Gladwell points to research that says a good teacher dwarfs the effect of any other factor on a child’s education. The US could overcome its middle-of-the-road global relative performance simply by substituting the bottom 6% of teachers for average teachers.

The problem is, you can’t predict success in teachers, anymore than you can in quarterbacks.

The solution, he says, is to stop focusing on accreditation and criteria. Instead, have the equivalent of apprenticeships, open admissions, tryouts open to all. The good ones prove themselves quickly, as do the bad ones. Find out who they are not by controlling input metrics, but by letting people jump into the water and seeing who can swim.

I suggest that the same problem exists in evaluating suppliers, recruits, and sales funnels. These are all deeply complex, human, messy relationship issues. Good customer, employee and supplier relationships make a huge difference.

But the prevailing business wisdom is that we can analyze and measure our way into defining the right relationships. Think of RFPs (requests for proposal) or recruiting specs.

The motivation behind select-by-spec and hire-by-numbers is complex. It’s part blind faith in “science.” It’s part fear-driven cover-your-butt desire to appear blameless. It’s part fear of interaction with other people.

But whatever, it’s hurting us. In the name of efficiency, many business processes have been employed to bring human relationships to a least common denominator level. The result has been low effectiveness.

Let people mix it up. Inefficiencies can be dwarfed by effectiveness. It’s as true in work as it is in the NFL and the classroom.

Madoff: Investment Fund, or Virtual Reality Game?

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It’s beginning to look like Bernie Madoff’s business model had less in common with a hedge fund or investment management firm than it did with an online virtual reality game. Sort of a Sim City for investors. The money sent in was real: everything thereafter was from Oz.

Until now, we’ve thought of Madoff’s business as another financial management operation gone crooked. Think rogue currency traders, badly hedged positions, or just pump and dump.

But the Madoff scandal may be truly unique.

Consider this, from the Boston Globe:

A federal agency that regulates brokerage firms says there is no record of Madoff’s investment funds placing trades through his brokerage operation. That leaves only two options – either he was placing trades only through other firms, which would be highly unusual, or he was not placing any trades.

"There was no evidence of the Madoff broker-dealer executing trades for the [Madoff] investment adviser," said Herb Perone, spokesman for the regulatory group, the Financial Industry Regulatory Authority [FINRA]

What are the implications?

• If there were no trades, then there were no investment gains. The “profits” he made were a myth.
• Madoff has claimed he made money only on trading commissions—but if there were no trades, then there were no commissions.
• The statements he issued to investors were truly fictitious. His “statements” were to real accounts as an avatar is to a gamer.

All an investor could know for sure was that you gave Madoff money, and you got back pieces of computer paper with ink on them.

Let’s say you sent in $1M through a feeder fund. You got back monthly “statements.” Let’s say you got a return of 15%. In five years, you “owned” $2M.

But follow the money. Your original $1M went to Madoff’s bank account. Each year, Madoff took out a few percent (“transaction fees”), and your feeder fund took 20% of your “profits.” (Neither “transaction” nor “profit,” of course, are real; the only thing real is that Madoff and the feeders took money out).

In five years, that’s about $400K. Instead of $2M, you know “own” $600K. And of course, “own” belongs in quotes too.

Even that was bupkus. Virtual reality money. Sim City money. Monopoly money. In the real world, it didn’t exist except in Bernie’s bank account and a computer program.

But it did exist, you say; people got their money back!

Close your eyes and envision Christopher Walken, in his best Balls of Fury voice, saying, “What paht of ‘Ponzi Scheme’ dint you unduhstand?”

I’ve seen some Madoff statements. They look like day-trader accounts. They show page after page of “transactions,” without any subtotals or easy way of matching buy/sell orders.

If you checked, the market prices all looked valid. They were. They just weren’t hooked up to a real account. He was in effect running an entire trading system in simulation mode—and telling everyone it was real.

If you looked at the bottom of your “statement,” you’d find Madoff’s broker-dealer firm’s name. Except—it apparently never made those trades.

Many people believe it’s impossible that one man could pull all this off. I’m not so sure.

Madoff made his reputation on building complex financial systems, covering the full range of investment management—accounts, trades, taxes, clearinghouses, balances.

All he had to do was switch the input signal from real accounts to simulated accounts. And every programmer knows what happens then: GIGO—Garbage In, Garbage Out.

Call it the Madoff Virtual Reality Trading Simulation Game.

And pay no attention to that man behind the curtain.