Growing Up with the Ponzi King


I first met Bernie in 1948 when we were both in the 5th Grade at PS 156 in Laurelton, Queens. He was two months older than I was, and until then the New York City school system ran grades on an semester, rather than an annual, basis. Thus he was in the 4B when I was in the 4A in the spring of 1948. Since he lived 5 blocks southwest of the school and I three blocks northwest our paths seldom crossed. The school system "folded" the grades and so in September of 1948 we both started as 5th Graders. The girl across the street was three months older than me and had always been proud of being ahead of me in school. She actually cried when she found out that we would soon be equally placed. Needless to say, she is now about 10 years younger than I am.

Laurelton was a commuting suburb of 25,000 within New York City about 15 miles southeast of Times Square. Many of the men took the Long Island Railroad to work. This was often quite an ordeal; with the trains frequently late and often overcrowded. The railroad at that time was a money-losing subsidiary of the Pennsylvania railroad and was on the short end of the equipment distribution. Some of the passenger trains had cars that were meant to carry baggage and even a few that were half passenger seats and half horse transport with hay and straw being left on the floor. The Long Island Railroad in a reverse publicity move changed its designation from "The Line of the Dashing Commuter" to that of "The Line of the Harried Commuter" with decals on the cars illustrating a man with briefcase and newspaper running to an about-to-depart train.

There was another hazard to one's commute. Trains would come from central Long Island and the Island's south shore to join at the Jamaica station. This was a predecessor to the Airline "hub". They would then leave simultaneously from Jamaica to either Penn Station in Manhattan or the Atlantic Avenue station in downtown Brooklyn. Those who had secured a good seat in Nassau or Suffolk county might have to dash across the Jamaica station to avoid having to stand for the rest of their trip. Likewise, some would congregate standing by the doors on the first leg of the trip, to best capture a seat on the final leg. There was an oft-told story about a Laureltonian, who upon meeting Saint Peter at the Pearly Railroad Station in the sky, was told that one train would be leaving for Heaven and the other would be going to Hell. Before being told the conditions as to assignment, he interrupted Saint Peter by saying he didn't really care which train he was to take as long as he would not have to change at Jamaica. Trains go both ways and there is more to come about the LIRR.

PS 156 was a three-story, 9AM to 3PM, eight-grade elementary school. Bernie and I graduated in June of 1952. There were 5 sections to each class from the 6th grade to the 8th. We were together in the 8th. In the 6th grade we shared common gym and music-appreciation classes. The 7th and 8th grade had departmental classes. Each section had a "home" room and teacher; but went en toto to different rooms and teachers for specific classes. Thus we all shared common teachers for English, Science, Mathematics, etc., but had them at different times. Each hour we would march along the hall walls in counter-clockwise fashion along the third floor to attend our next class. Gym and hobby-hour had all sections together. Each section had its own basketball and softball team. The games were played after 3PM. Being short in stature, flaccid in build, slow in foot, and easily fatigued, I arranged with the Physical Education teacher to keep the softball statistics. My first publication, after three games showed Bernie with a .143 batting average (2 for 14) and on the bottom of the list. He was quite put out and asked me about my batting prowess. I was at the time 0 for 5. Why wasn't I on the bottom of the list? I said my print-out only included those with at least 10 at-bats. This answer did not make him happy. He felt that if someone was doing more poorly than he, it should be shown, or better still; just don't show anyone with a batting average under .200. He then proceeded to improve, raising his average to about .250. I ended up at .100 (1 for 10 on a bunt single), but had secured 5 or 6 walks for a reasonable on-base percentage. The incident showed that Bernie did not appreciate negative publicity; but then again, who does? Bernie was among the taller students in the grade when I competed for being the shortest with two or three others. He was a good, but not outstanding athlete. Much the same as a student.

Bernie's best friend was Elliot who lived a block north and across the street from him. Elliot was the class leader with a head of curly blond hair. Whatever activity Elliot was involved in initiating, Bernie also participated in. While some kids were jealous of Elliot and begrudged him his popularity, no one had negative feelings toward Bernie.

Towards the end of the 7th grade year, the school appointed some of us as "Monitors". We would wear Sam-Brown white belts and guide the younger students across the streets on the corners adjacent to the school building. They would also help maintain discipline in the school yard prior and after classes and during the lunch hour. Bernie was given a corner post, which was a more responsible position. I had the west entrance to the inner school yard, which I shared firstly with a mentoring 8th grader, and the next year with a fellow class-mate.

Elliot and Bernie formed a social club called the Ravens. They even had sweaters with the "Raven" designation. This club was the status organization for my age group. There was a counter-popular club formed by a sociologist whose younger brother was among the less popular. This club was called the Maccabees I was one of its earlier members. Both clubs met in the Laurelton Jewish Center, across the street from PS 156. The Maccabees was nearly completely Jewish in composition. The Ravens were pretty much split between Jews and Gentiles. In the fall of 1951, I was invited to join the Ravens. I eagerly accepted since I was somewhat surprised that I was wanted. The Ravens had a reverse quota system. Since they were housed in a Jewish synagogue, the Ravens always had one more Jew than non-Jew. This way they could justify their presence as a Jewish organization. If a popular Gentile was wanted as a member, they had to search for a usually less popular Jew to invite. Only decades later did I realize that this was probably the cause for my unexpected recruitment.

In early 1952 our 8th grade section won the school basketball championship. Bernie and Elliot were the best players on the team. I came to the games, with my usual function to bring some popcorn for refreshments. In one of the games, few of the regulars showed up and so another scrub and I went into play. We were told to just stay in the offensive zone and try to secure any errant passes by the rest of the team. I touch the ball exactly once. For this monumental effort I received one of the team's championship medals.

In the spring of 1952 our section seemed destined to win the softball championship. We were two games ahead with only two games left to play. We managed to lose these last two games and went into a playoff game with another team. Again, some of the regulars failed to appear and so I was put in center field and another scrub named Richard put in right. For the first five innings of the 7 inning games we had no balls hit at us. Our team was one run down when the opponents put two men on base in the sixth inning. Our luck then ran out. A fly ball was hit to right-center field. Richard and I ran toward the ball yelling at each other "you get it!" It hit the ground between us, rolled to the back wall of the school yard, and 3 runs scored. We lost the game. Thus Bernie and I failed to get double medals in 8th grade sports.

Graduation brought about high school selection. Some of the brightest and most enterprising students went to New York City's specialty honor schools: Brooklyn Technical , Stuyvesant, and the Bronx High School of Science. Laurelton was within two high school districts: Andrew Jackson High located in Saint Albans, and Far Rockaway High in Wavecrest, just one LIRR station west of downtown Far Rockaway. Andrew Jackson had a better scholastic reputation, but was located in a 'changing neighborhood'. Saint Albans was becoming New York City's first suburban American black area. The school also drew from some low income areas which scared many of Laurelton's liberal Jewish parents. Far Rockaway involved taking the LIRR in a clockwise loop through Nassau County's Valley Stream and Five Towns area and then back into New York City's Rockaway Peninsula. It would be about a 40 minute train ride which was more appealing to a 13 year old than a 30 minute two-bus ride. Far Rockaway had the beach available for recreation in May, June and September and Summer School if one chose to attend that. Bernie, I, and virtually all of the Ravens opted for Far Rockaway.

High School

Far Rockaway High was a three storied, stone block building with a student body of about 2500. It serviced the New York City portion of the Rockaway Peninsula and the communities of Springfield Gardens, Laurelton, and Rosedale in southeastern Queens. The latter areas were dropped from the enrollment zone in 1957. Students from there could reach the school by auto or the aforementioned LIRR.

The LIRR commuters going east to Long Island communities or to the Rockaways were not safe after surviving the vicissitudes of changing-at-Jamaica. About twenty students boarded at the Springfield Gardens' station with another forty each at Laurelton and Rosedale. About sixty of these were generally screeching mid-teen girls. The LIRR cars had either seating for two on either side of the mid-train aisles. Some of the cars were differently configured with seating for three on one side and across a narrower aisle a slightly smaller seating for two. The seats were set in a position to face the forward direction of the train. However, they could be reset so as to face each other so that four or six people would be sitting with each other. This was referred to as a "double". Pity the poor newspaper-reading commuter who was suddenly joined by three or five teenies making a double and loudly jabbering for the rest of his trip. Social pecking order was also determined by LIRR seating. Bernie and Elliot with two of their close neighbors were usually the core group. Others tried to sit near them. If one of the core four was absent or a "six-double" was available, others -including myself- would scramble so as to sit with the "Alpha-males". There was virtually no instance when girls and boys would sit together. For our first three years we took the LIRR to the Wavecrest station, the first one after Far Rockaway. In our Senior year, the New York City Transit Authority purchased the LIRR facilities from Far Rockaway westward. We then had a choice of taking buses from the LIRR station to the school, or walking the half-mile. We usually let the weather make our choice.

This change gave me some opportunities to visit my Uncle's Knish Shop on Mott Avenue about 2 blocks from LIRR Far Rockaway station. His sister, my aunt, also worked at his place. My family had a history with Far Rockaway High. Two cousins who had moved to Laurelton with their parents several years before I did, had graduated from FRHS. The aunt working at the Knish Shop had both her children as graduates, one who was a freshman there in my Senior year. My uncle's younger son, my cousin Robert, was two years behind me in FRHS. Although not much of an academic student, he became America's leading Thoroughbred Racing trainer around the turn of the century, winning 5 Eclipse Awards. So for one year we were 3 cousins at FRHS.

Going home from school was less organized than going to school. While we nearly all went at the same time in the morning, our different schedules often made for different exit times. On Fridays we frequently stopped at a bowling alley in Valley Stream. On October 4th in 1955 I was going home alone from the bowling alley. I was waiting at the Bee Line bus stop where a man was playing the World Series on a portable radio. It was the sixth inning and the Yankees had men on 1st and 2nd with no outs, but trailing by a score of 2-to-0 to a relatively obscure up-stater named Johnny Podres. Yogi Berra sliced a line drive toward the left-field foul-line where an equally obscure substitute left-fielder named Sandy Amoros managed to catch it. Even worse for the Yankees, he threw timely to 2nd base to accomplish a double-play. I arrived home by the 8th inning and saw the conclusion of the game resulting in the Brooklyn Dodgers only World Championship.

I did not share very many classes with Bernie. We were together in a Music class and most memorably in my sophomore English class. We were scheduled to make oral book reports. Prior to the presentations, Bernie had looked at my book and pronounced it "boring". "Hardly any pictures" he proclaimed. He was among the first to do his report; but he had not yet read any book. Not visibly concerned, he announced his title as "Hunting and Fishing" by Peter Gunn. "Peter Gunn!!" snorted Elliot from the 3rd row, and some other giggles followed. They were quickly suppressed because no one really wanted to see Bernie fry. Bernie smoothly went through his book report, excusing the material lack of the volume by his returning it to the public library. Perhaps the teacher saw through it; she was less than a decade older than we and pretty sharp. But, nobody could really get mad at Bernie, and his put-on Charlie Brown persona in this case carried him through.

Bernie was a volunteer locker-room guard as his student service assignment. He would tell us how dumb most of them were and how they like to play "punch-for-punch" -hitting each other in the fists until one gave up. Bernie himself often showed bruised knuckles. When asked about it, he ventured that he could not let the idiots think he was "chicken". Bernie and Elliot "rushed" for a fraternity near the end of their Sophomore year. They thought the hazing was stupid, but felt that they wanted to prove themselves. Neither took any real pleasure in hazing the newcomers the next year, and by their Senior year they were pretty inactive in the fraternity.

Bernie joined the Far Rockaway swimming team -the Mermen- in his sophomore year. Since most of the meets were held right after school, several of us stayed after class to watch him compete. He usually swam as part of the Medley Relay; doing either the Butterfly or Breast stroke. I recently found a 1954 issue of the Far Rockaway newsletter, The Chat. It mentioned that the Mermen finished their season with a 4-4 record, but also noted that Bernie's medley team had won their last two contests. He later used his swimming skills to secure a summer job as a lifeguard with the NYC Parks Department on the Rockaway beaches.

At that time New York State had Junior Driver Licenses for those attaining 17 years-of-age. One could obtain a driving permit at 16 which required you to drive with an adult licensed driver. Neither permit allowed one to drive within New York City. Bernie, Elliott and two neighbors got their Junior licenses near the beginning of their Senior year. They took turns driving to school. They would take the back streets of Lauelton and Rosedale to reach Nassau county, drive down Peninsula Boulevard to the New York City line, and then take back streets to school. They would park about two blocks from school so as to make sure none of the teachers would see them. Elliot was having a bit of trouble with math at that time and I tutored him. As payment, he would give me a ride-or-two for each lesson. I would often get rides home with them after a swimming meet or if one of the regular drivers was absent. I did not get my license until college, but as the Senior year passed on more-and-more of my classmates got theirs.

Driving widened our world of entertainment. We would go bowling at Falcaro's, a huge emporium on Peninsula Boulevard. We would play tennis at Brookfield Park in Rosedale. Starting with the Spring of 1956, we would play golf at either the Lawrence Country Club or at the Bethpage public course. Bernie was the best of us; he could drive further and he had good control of his irons. I could only keep close in the scores by cheating. My specialty was hitting into the woods at 4 and getting out at 3. The automobile widen our choice of movie theatres. We could choose among several films instead being limited to Laurelton's local "itch". Since I was quite small for my age, I could still pass under 15 with a 25 cent admission. Bernie and another friend Ruby were the tallest among us and so I was referred to as either of their younger brother.

During the fall of 1955 into the winter of 1956, our group formed an amateur football team called the Long Island Spartans. Bernie's father was the coach. Bernie often played quarterback and defensive end. Considering my size, my role was scorekeeper. However, in each game we needed officials and so I ended up in the role of Referee or Umpire together with that of Linesmen.. We played on the grass apron between the Belt Parkway and its parallel service road, Conduit Boulevard, near the Aqueduct Racetrack. While we chalked the outer boundaries of the playing field, there were no yard lines. I had not yet secured glasses for my advancing myopia, and so my placements of the football after a play left much to be desired. In one game Bernie's father started screaming at me for costing the team several first downs. I finally assessed an "Unsportsmanlike Behavior" against the Spartans for his outbursts. My actions were instrumental in the Spartans losing that game. This was particularly foolish on my part since I was depending upon Mister Madoff to drive me home after the game. Fortunately, he cooled off, and was not too nasty to me on the ride home. He somewhat politely asked me if I had had my eyes recently examined. When I relocated to downtown Saratoga Springs a few years ago I found my 1955-56 Spartan score book. It was mostly blank except for listing the players on the Spartans for the first game. I had meant to mail this to Bernie since it would have more sentimental value to him, but was not sure of an address. Since the recent news about his Ponzi escapades it was quite easy to find an address. Knowing that he would have ample time on his hands and could use some pleasant thoughts about 50 years ago, I mailed the Spartan score book to him in mid-December.

A few months before graduation, Bernie hooked up with Ruth. She was a very pretty petite blond with green-almond eyes. Elliott thought she was an "air-head", but she was no more so as were most 15 year-old girls. Perhaps, Elliott was a bit envious of being displaced in Bernie's attentions. Graduation took place in June of 1956. We all went to local colleges. I went to Queens, Bernie went to Hofstra. Others went to New York University, Adelphi, Saint Johns, and Columbia.

Bernie also worked with a company installing underground water sprinkler systems. He became a partial owner of the firm. The concept was similar to that that was used in Israel to grow crops in the former deserts. There was little evaporation and the water could be used efficiently. Like underground electric and telephone lines there was a potential downside. Maintenance and repairs could be costly since the pipes would have to be extracted. Once a client committed to the installation, he was a potential cash cow. Bernie used these teenage sources of income to later enter the world of equity finance.

College and Beyond

College to some degree lessened the interactions of our Laurelton group. We met new associates and had less time for daytime events. We still played some golf on weekends and went to movies and played cards at night. However, some of us started getting involved with women, an understandable diversion. However, in about early 1958 I had an incident with Bernie that in retrospect gave an indication of what was to be. He had picked me up from my home to drive me to a card game. There was snow on the streets and the parked cars on either side greatly narrowed the driving space. I was a new and very cautious driver in snow and ice, even though I was a bit wild on the clear parkways. Bernie went up the street at about 40mph where I would do about 20mph. "Bernie, why are you going so fast, you could nick one of the parked cars" I said to him. He replied that the car had the same width at 40mph that it would have at a lesser speed, and so he wasn't increasing the risk of crashing. Leaving aside the fact he would have less control of the car if he skidded, he was right about the risk possibilities. According to Einstein's laws of relativity, even if his velocity approached the speed of light, the car's width would remain the same, although its length would decrease and its mass would approach infinity. What he chose to ignore was the fact that he was greatly increasing the resulting damage of a potential crash. When Bernie thought he would be successful it was clearly "full speed ahead".

In September of 1958 Ruth started Queens College. I had not seen too much of her since Bernie's high school graduation. Our scheduled hours were somewhat similar, even though I was in my Junior year in pre-engineering, and we often rode to the college together. That summer we both had classes and the same time and we drove together throughout July. Two other Laureltonians went with us and we often took turns driving. Bernie was doing national guard duty that summer (probably at Fort Drum) and so Ruth had quite a bit of spare time. The two men who rode with us, one was in my Differential Equations class, liked to play bridge. We four would often stay at school late to play and sometimes met in the evening to do so. One Friday, we were playing in a small classroom on the second floor of the Paul Klapper Library at Queens College and we were probably quite absorbed in the game. One of the library's custodians came into the room and asked us what we were doing there since the library had closed hours ago. He saw that we were just playing card s and laughingly led us out of the locked building. He rhetorically asked if we paid as close attention to our studies. That September, I transferred to City College's engineering program and gradually saw less-and-less of Bernie and Ruth. They had been engaged just before Bernie's National Guard tour, and were married the next year.

My mother remained in contact with both of their mothers. I would hear from her: Mrs. M says "Bernie is doing very well." Mrs. A says "Bernie is doing very, very well on Wall Street." Mrs. M says "Bernie is a millionaire." Mrs. A says "Bernie is a multi-millionaire." Each subsequent year I searched the Forbes 400 richest persons to see if he made the list. I never saw his name there. Perhaps, they were as undiscerning as was the SEC. I moved to Saratoga in 1969 and my parents to Florida in the 1980s. The two mothers also moved there, and Ruth's mother is buried in the same Hollywood cemetery as my parents. My Laurelton experiences became vague memories.

In 1992, I read a Wall Street Journal article that had an affixed caricature of Bernie. A financial advisor had been investigated by Florida's law enforcement agency for promising his clients 10% to 12%. The man stated that he was funneling their money to Bernard Madoff. He then showed that for the past three years he had delivered 15%-to-18% returns to his clients and so he was not guilty of false advertising. The article also had an explanation of how Bernie could earn such returns.

He bought convertible bonds of companies paying about 6%. These companies paid little or no dividends. He then sold the stock of the companies short. If one sells a stock short you are responsible for delivering the dividend. Since convertible bonds usually sell at a 10%-to-15% premium over the underlying stock, this action by itself would yield little more than 5% per annum. The money-making element is to then take the funds from the short sale and repeat the action. An example after 5 repeats:

Original investment: $100,000
bond coststock sale
85,000 72,250
72,250 61,412
61,412 52,200
52,000 44,370
------- -------
$370,663 $313,232

For only 5 transactions at 6%, the $370,663 earns $22,240 per year or 22.24% on your original $100,000. If one kept dong this, 30%+ was quite possible I asked my broker if I could try this caper. I was told I could buy the bonds and sell the stocks short, but the brokerage house would keep the money from the short sale as security. If I had a few million dollars in my account, they would let me have one-half the sale money, but I would have to treat the rest as borrowed margin and pay the brokerage house interest.

Bernie could do this with little trouble. He would buy the bonds of stocks his firm(s) had on hand. He would sell the stocks that were not really his while keeping the clients' records unaltered. There were billions of dollars worth of stock available to him. If the stocks fell in price, the bonds would fall more slowly: the 6% interest provided a floor. If the company went broke, Bernie would still do okay for he could pocket all of the short sale and needed only a 15cents-on-the-dollar settlement on the bonds to break even. If the stocks stayed even or went up gradually, Bernie would still get a 20%-to-30% return. He could only get hurt if the stock-market went up like a rocket.

In the late 1990s this is what happened to the stock market, especially with the non-dividend-paying NASDAQ stocks Bernie's firm held in plentitude. When the convertible bonds' underlying stocks rose, the amount of client's unsecured funds rose. If a client sold a high-flyer at a profit and asked for his funds, Bernie had to deliver the money. Since Bernie was highly leveraged every dollar he delivered cost him the use of $7-to-$10. An old Wall Street adage goes; "He who sells what isn't his'n, must buy it back or go to prison". Since Bernie wanted to enjoy his mansions and yachts, it was now Ponzi time!

Bringing in billions of new dollars allowed Bernie to hang on through the bursting of the "dot-com" bubble early this century. The major pin-prick came in 2008 when some European clients, hurting from economic slowdown there and the down-draft in commodity prices asked for--according to media accounts--some seven billion dollars. The whole leveraged house-of-cards collapsed with this request. The money shown in their accounts did not exist.

In retrospect, how predictable were Bernie's misdeeds from the decade-of-development I was able to observe? He showed pride of appearance, willingness to deceive, no fear of the eventual consequences when there was a good chance of success, and while very out-going socially, kept much of his actual life within a closed circle of family and confidants. However, millions of youngsters in the United States show most or even all of the same characteristics and grow up to be law-abiding, productive citizens. Perhaps the Wall Street milieu and the coincidental boom-and-bust cycles, allowed him to thrive, prosper, rise to unbelievable riches and crash in ruin.

Home Page

Page copyright for the author by Sue Gleason, January 23, 2009;      Last updated: January 23, 2009