Frederik Tygstrup–Learning from Madoff: On Fiction and Finance in the 21st Century


This article was published as part of the b2o review‘s “Finance and Fiction” dossier. The dossier includes a response to this article by Michelle Chihara.

It’s just money! It’s made up! Pieces of paper with pictures on it so we don’t need to kill each other just to have something to eat. It’s not wrong. And it is certainly not different today than it has ever been.

John Tuld (played by Jeremy Irons), in J. C. Chandor: Margin Call

The idea of fiction and the use of paper money came into being more or less at the same time: in the mid-18th century, at a time when Western modernity developed its characteristic propensity for speculation. Fictions were understood then as imaginary tales that had no real referent in the world, but that nonetheless retained interest by presenting something that could arguably have been, once one had willingly suspended one’s disbelief. Paper money, meanwhile, was acknowledged to have no intrinsic value whatsoever, but to nonetheless possess the very practical quality of being a measure of comparative value, if backed by a belief in its ultimate convertibility by the state. In both instances, we see on the one hand a speculative leap into a universe of conjecture–the plausibility of a given event, or the compatibility and eventual exchangeability of different goods–; and, on the other, a self-conscious caveat that this leap is only warranted if, in the first case, we don’t take the speculative face of fiction for something real, and, in the second, we don’t take the speculative face of money as something unreal. As long as we believe firmly enough in fiction not having an actual referent, and in money having an actual value, we are able to manoeuvre these otherwise slippery media. But, every so often, these intricately balanced equilibria tend to falter and we discover that what we took for fiction should really be understood at face value, or that what we took for good money is really nothing but fictitious assets.

Much more can be said about this peculiar kinship between fiction and money, their long common history, and the many ways in which they have shown proclivity to forage into the domain of the other, often with strange and disquieting consequences. In the following, I will examine a recent case where the domains of fiction and of money intertwine and eventually demonstrate the contemporary (although long-standing) fragility of their twin orders.


In June 2009, Bernard Madoff was sentenced to 150 years of incarceration for a fraud of more than 65 billion dollars. Through the golden years of financial accumulation, spanning from the abolition of the Bretton-Woods agreement in 1973 to the crash of 2008, Madoff worked his way up to become one of the most prominent fund managers on Wall Street, a pioneer of digital trading, co-founder of the NASDAQ, and at a certain time owner of one of the five biggest trading agencies on Wall Street with a net credit of more than 150 billion dollars. It was only after the crisis of 2008, when liquidity froze and capital was suddenly withdrawn from the markets, that the Madoff fund was revealed to be thoroughly insolvent: the generous returns were not the outcome of felicitous investment strategies but were simply paid from the steadily incoming deposits to the fund. A Ponzi scheme, in other words, where no investments were taking place, and where returns were paid for by taking on more credit, demanding more returns, and so on. For a certain period of time, anyway. In Madoff’s case, for probably more than 20 years.

For those 20 years, Madoff was considered a wizard, a genius in the creation of more money out of money. And then he turned out to be just another crook. A crook whose trick was to feign, to all the investors he ruined, that he could do precisely what the rest of Wall Street was doing too, transforming money into more money—although he, of course, could do it just a little better. There were no investments taking place in the firm. Madoff simply deposited the incoming funds to his account in Chase Manhattan Bank and withdrew what was needed to pay returns and eventual repayments to investors who wanted out (which was rare), all the while producing neat and reassuring statements that itemized the alleged buying and selling of assets, citing their real market values at the time, and vaunting the merits of his unfailing “split-strike conversion strategy”. An elaborate fiction, in other words.

The Madoff case has drawn huge amounts of media attention, much more than other Ponzi schemes that have blown up both before and after Madoff. This is not least—according to the sociologist Coleen P. Eren, who has mapped the media turmoil—because of the sheer size of the amounts involved and the duration of the scheme. The international press of course covered the unravelling of Madoff’s scheme and the 6 month-process from indictment to conviction. The case also provided, however, a fecund “human interest” angle that allowed the media to delve into the auctioning of the family’s houses and yachts, Ruth Madoff’s wardrobes and jewelleries, the painful conflict between Madoff and his sons, as well as with the victims that lost their fortunes. Since the case blew up, there has been a steady flow of books and articles; a film, The Wizard of Lies (2017), based on a book by New York Times journalist Diana Henriques, featuring Michelle Pfeiffer and Robert de Niro as Ruth and Bernie Madoff; and the 2023 Netflix show Madoff: The Monster of Wall Street. The Madoff case clearly provided a veritable drama of dethronement, as if it was tailored for public attention.

This flood of cultural production testifies to a distinct combination of fascination and outrage. On the one hand, one easily recognizes the default fascination with the rich, the case offering a peep into the life in the upper echelons of banking and brokerage, mobilizing sentiments of admiration and awe. And Madoff’s life did indeed have, in every detail, the appearance of the successful modern financial entrepreneur: penthouse, villas, private jets, charity galas, board meetings, conspicuous parties. It’s a lifestyle that is admired and desired by many, and a profession that many believe in—that of making money out of money. The intensity of this belief, desire, and admiration also explains, then, the concomitant feeling of outrage when it was revealed that the wizard was a crook, who took investments from family, friends, philanthropists, pension funds, reassuring them all that their money was safe and thriving with “uncle Bernie”, all the while funnelling them into a scheme that would definitely—and fatally—prove unsustainable in the long run.

It is tempting, of course, to speculate on the close relations between these expressions of fascination and outrage and the mixed feelings they display, involving disappointment (what we admired was not admirable after all), frustration (what we believed in is not to be believed), Schadenfreude (let the mighty fall), and class anger (the superrich are getting richer all the time, time to call it out). Whatever the exact case may be, the vilification of Madoff did seem to have a particularly affective tension to it, as when the cover of New York Magazine portrayed him as a “monster”, diligently photoshopped. One of the books about Madoff’s Ponzi scheme, Brian Ross’s The Madoff Chronicle, has Madoff’s personality laid out by an ancient FBI criminal profiler who casuistically portrays him as a typical “sociopath” and “cold-blooded” narcissist. Others have called him a crook, a liar, a schemer, a seducer, and much more (all these reactions are richly documented in Eren’s book mentioned above). Even one of the more sober renditions of the Madoff story, Diana Henriques’s The Wizard of Lies, cannot resist succumbing to indignation when glossing Madoff’s crimes (“only a soulless, heartless monster could have inflicted such pain on those he knew and supposedly cared about,” and “no human being could construct a life of such brazen, destructive lies” (346)).

The tonality of indignation is in fact striking, as is the, by all standards, quite exuberant conviction for what was, after all, a fairly trivial white-collar crime, the big numbers notwithstanding. What did Madoff do? He swindled rich people and money managers who found themselves entitled to have a 20 percent annual gain on their fortune, and who believed that the well-dressed and soft-spoken Madoff in his sleek office could deliver this.

In this sense, the remarkable affect sparked by the Madoff case might not even be his criminal acts, but the very normalcy of what he was doing. Coleen Eren points to what she calls the metaphoric nature of the trial: “Talking about the trial became a way of talking about punishment not only for Madoff but for those responsible for the financial crisis […] He offered a “fix” for all the other improprieties and crimes that went unpunished, including the class inequalities and greed and the ressentiment” (Eren 120).

The Madoff case, pace Eren, can thus come to represent what is flawed in contemporary financialized capitalism. This representative identification of Madoff with something bigger might indeed be metaphorical (or even metonymical: representing a totality by one part of it); I would like, however, to suggest an allegorical reading, by which the case becomes a kind of a slightly convex mirror in which we not only see his (devious) deviation from normal market behaviour, but also a replication of it, only in a slightly distorted fashion.

One of the big issues that keeps coming up in the reactions to the case is not only the magnitude of the fraud—the unimaginable, sublime number of 65 billion dollars–but also its longevity: how on earth, everybody exclaimed, could Madoff keep his fraud running for several decades? One answer to this is evidently that he was hedged by a financial market that expanded in volume with the same pace as his need for supplementary capital deposits to cover the interests he paid to his creditors. For twenty years, the amount of idle capital in the financial markets kept growing at a rate that matched the Madoff fund’s need to take on credit. Nobody wanted their money back for any purposes (of course some did make withdrawals and made a lot of profit by exiting the Ponzi scheme in time; however, the net growth of the fund sufficed to keep the pyramidal expansion of the business going for an exceptionally—and uniquely–long period of time). In other words, Madoff’s business didn’t stand out as an anomaly, but the exponential growth requirement of his Ponzi scheme was underwritten by the market at large. In this sense, Madoff’s fictitious investment fund also tells us something about the nature of fictitious capital in an age of accumulation by financialization: precisely not as an anomaly, but as an allegory of unsustainable credit-based and highly leveraged capital accumulation.


In the third volume of Capital, Marx discusses an array of different forms of so-called interest-bearing capital (credit, bonds, and shares) and the idea that comes with them, as he puts it, that it is “the property of money to create value, to yield interest, as it is the property of pear-trees to bear pears” (Marx 516). The sweet dream, in other words, shared by Madoff’s investors and the rest of us, that money has its own particular fertility. Marx’s analysis of interest-bearing capital highlights two particularly noteworthy features: first, that its value is essentially promissory. If money, after all, does not procreate all by itself, interest refers to a value yet to be produced, that is, an anticipation of a valorising process that is expected to take place in the future. If liquid capital results from previous valorising processes (at some point Marx calls it “frozen labour”), fictitious capital—in all its forms—is a promise of value to be produced at some point in the future, a “frozen future”, if you like. Secondly, fictitious capital has the particular feature that it can, by way of its promissory nature, be promised more than once. One given asset—or one specific claim on the future—can be counted, for instance, both as somebody’s fortune and as a security for a credit, or for a second or third credit, for that matter. “Everything in this credit system appears in duplicate and triplicate, and is transformed into a mere phantom of the mind” (603). Capital here retains its fictitiousness in that promises can be stacked up, to an amount where the aggregated claims cannot be honoured. Due to these two features, the trader in credit appears, with Marx’s characteristic penchant for one-liners “as a prophet and a swindler at the same time” (573).

Marx’s concept of fictitious capital is itself almost prophetic. In Capital, it was an addendum to the primary analysis of valorisation of labour, just as in his time speculation was a marginal source of valorisation in comparison with the decisive means of valorisation, that of production. Today’s financialization has turned the hierarchy between the two upside-down, and the twin mechanisms of fictitious capital—claiming a value in the present that is only to be produced in the future, and using credit to obtain more credit—are now ubiquitous and central to the economy. Where the role of finance has generally been considered, by modern economists as well as by Marx in his time, as a means to create liquidity, that is, to move capital to wherever it is needed, the combination of the deregulation of financial markets, the stagnation of production, and advanced technologies of finance, has created a situation where financial transactions, rather than production proper, have become the main means of capital accumulation. Credit is by now—as Michel Feher has argued in Rated Agency—the most yielding commodity of all, and consequently the wave of financialization has amassed an immense volume of credit by securitizing still more assets. Real estate, infrastructure, health, education, and everyday consumption have all been turned from dormant values into assets that, when securitized with the tools of finance, can provide immediate access to liquid capital. Credit, then, however, of course also entails debt. And the massive securitization of almost everything has built up momentous positions of debt: commercial debt, private debt, national debt. This is the contemporary version of the “prophetic” side of fictitious capital: there are more outstanding claims on values to be produced in the future than ever before. Or, put differently, the return on capital assets remains high as long as more debt is heaped up in in the future—precisely the mechanism that allowed Madoff’s Ponzi scheme to remain hedged by the rising market.

There is more to financialization, however, than this heaping up of obligations that by now weigh down so heavily on the future. To properly gain profit from possessing credit, the finance markets moreover accommodate different ways of gearing up credit. One of them is to systematically leverage any given credit position, that is, to use credit to buy more credit. After the 1929 crisis, certain limits were set for how much banks should be allowed to leverage, but since the 1980s, these precautions have been gradually suspended and the degree of leverage of banks, financial institutions and corporations has skyrocketed, using existing claims to issue more claims, and indeed using these inflated positions to performatively build up supplementary market value, as Martijn Koonings has compellingly shown in Capital and Time. When banks (in the recently broadening sense of the word, now covering all kinds of financial institutions and agents) are allowed to lower the reserves ratio, and when the economy is at the same time “eased” with generous issuing of public debt—that is, when there are both ways and means for leverage at hand—claims on future production of value are multiplied over and over again. Banks, as pointed out by Stefano Sgambati, “are impelled to come up with financial innovations that, besides enhancing their leverage, propel an ever growing marketization of other people’s debts” (Sgambati 309). This is also the point at which fictitious capital comes to refer not only to the “prophet”, but also to the “swindler”: where the same promise pertaining to the future is given more than once for every given asset.

And we can go even further. One thing is to obtain more credit with the credit already at hand; yet another—and this is a second defining feature of financialization—is to constantly re-mediate credit in order to create more liquid capital. This is the business of derivatives, contracts betting on the future value of credit positions, contracts that can again be bought and sold and eventually exchanged again to liquid capital. Derivatives can price risk, or put differently, they are a means of packaging risk as a commodity that can be bought and sold on a new and lucrative market—a market presently estimated to an outstanding gross value of some 500 trillion dollars. Derivatives are what Cédric Durand has called a “second generation fictitious capital” (Durand 148), and the surge in issuing derivatives (following another set of de-regulations) has led to the invention of a brand-new commodity: a piece of securitized contingency. Practical as they might be, derivatives in their present, rogue form have produced another layer of outstanding claims on the future: not only multiple claims on every asset, as in the case of the present leveraging techniques, but now also factoring in the price of the risks inherent in the contingencies of the future, to be paid by the very same future.

When finance is no longer a supplement to the traditional mode of capitalist valorisation, that is, buying labour and collecting a surplus value by selling the products of this labour, but a primary means of accumulation in itself, it appears to have found potential surplus value in new places, beyond the “secret abode of production” analysed by Marx. Throughout the last four decades, where the increase in production has stagnated, the returns on capital to be obtained in the financial markets have nonetheless increased handsomely. And if we do stick to Marx’s insight that money does not yield interest like pear-trees bear pears, we should look somewhere else to gauge the source of this abundant creation of wealth. Saskia Sassen has observed that financialization has by now become “a capability to securitise just about everything in an economy and, in doing so, subject economies and governments to its own criteria for success” (Sassen 118). To pinpoint this new mode of subjection, she picks up another concept heralded by Marx, namely that of “enclosure”, given that today financial firms, as she puts it, “enclose a country’s resources and its citizens’ taxes” (15). And more specifically, the resource being enclosed comes down to being the future itself, the future in which the momentous debts incurred by the credits produced by way of financial instruments eventually reach maturity.

Looking at contemporary financialization this way, the allegorical nature of Madoff’s scheme becomes immediately apparent. The market in its totality and Madoff shared the inability to honor the outstanding debt positions, and the coy expectation that in the future somehow this gap will be filled. In Madoff’s case this would happen by multiplying depositions (which again had worked for decades); in the financial markets at large, it would happen by the belief in a steep increase in productivity to cover the enormous heaps of debt. The latter is an expectation with no historical evidence to back it up—one that is unsustainable to boot.

This structural homology between the Madoff case and the larger case of 21st century financialization becomes even more blatant if viewed through the lens of Hyman Minsky’s 1992 “financial instability hypothesis”. According to Minsky, historical periods where accumulation is based on debt expansion rather than increase in production will move through stages of hedged finance (where interest on debt is paid and capital preserved), speculative finance (where interest can still be paid, but the invested capital needs to be “rolled over”), and finally Ponzi finance (where the cash flow no longer suffices to cover neither repayment nor interest, and where credits might eventually need to be depreciated). This is what has become known as the “Minsky moment”, the cusp of a crisis of speculation with insufficient growth to sustain the demand for valorisation. That Minsky moment occurred, one could say, both to Madoff and to the rest of the financial world in 2008. It occurred on different scales, one where the Ponzi fiction did violate legislation and restrictions, and one where the Ponzi-version of fictitious capital, providing the conditions of possibility for the credibility of the former, did not. There is a similarity here that has even made economic sociologists suggest we don’t talk about different magnitudes of Ponzi schemes, but simply about financialization as a “Madoffisation” of the economy (Monaghan and O’Flynn 2017)—a process through which were issued cascades of deferred claims that can be immediately monetized–or, put differently: an enrichment in the present to the detriment of the future.


The allegorical relation between the Madoff case and the crisis of financialized capitalism that co-occurred in 2008 sheds an interesting light on the present relationship between fiction and finance. If our everyday understanding of the two rests, as I claimed at the beginning, on our creed that fiction does not represent actual beings, and that money does represent an actual value, our two cases testify to all kinds of transgressions of this understanding. Madoff’s meticulously crafted fictitious fund was taken to have a referent, and as long as it functioned, it thrived because it was hedged by growth in financialized accumulation, the lies and subterfuge notwithstanding. The break-down of the financial market—when the inflated edifice of assiduously fashioned varieties of fictitious capital fell apart and left the world economy and the livelihood of millions and millions of people in deep crisis—similarly established that the nominal value of most of the circulating assets was eventually non-founded. Or, to put the conundrum differently: when the fictitious character of money was being exacerbated by financialized capitalism and conspicuously bloated itself, we at the same time learned that fictions, even if they are un-founded, still have the power of world-making on even the largest scales.

This disquieting muddle, where the epistemic designs of fiction and of finance lose their neat contours, is at the heart of the scandal that broke out when the Madoff fund bankrupted. Madoff’s fiction, eventually avowed, was telling the truth about a bigger but stubbornly non-avowed fiction, like a distorted mirror reflecting the state of things at the onset of the financial crisis. This perplexity can be read in the conviction of Madoff, which of course enumerated all the infringements on current laws and regulations the Madoff fund had perpetrated. However, it also went quite a bit further in the statement of the honourable judge Chin:

In a society governed by rule of law, Mr. Madoff will get what he deserves and will be punished by his moral culpability… Trust was broken in a way that has left many—victims as well as many others—doubting our financial institutions, our financial systems, our government’s ability to regulate and protect. (qtd. Eren 125)

The judge is impeccably blunt: Madoff is morally condemned for discrediting our financial system. The exorbitant sentence is bestowed on Madoff to establish a distinction between his fiction and the bigger fiction of financial engineering and in order to reassure us all that we, and the frenzy of financialization that we cannot imagine escaping, are still situated in an orderly reality. That we are not just the secondary characters in somebody else’s fiction, in which they are about to seize what we believed was our future, appropriating that future and whichever aspirations we might have for it, for their own immediate gain.

There is no doubt that judge Chen’s sentencing “sent a message,” as the saying goes—the message being that there are beliefs that should not be tinkered with. But still, Madoff and his crimes were not solely placeholders for potential misconduct in the finance sector at large. I would suggest that his true moral crime—the one that might instigate doubts about the financial system—was revealed in the sentencing to be not his fraudulent fictions, but the way his business came to act as a displaced representation of the mundane, all-too-common practices of the contemporary financial sector that had set off the crisis. As an allegorical demonstration, the Madoff case could harbinger an undesired insight into the state of things. A play in the play, a fiction within a larger fiction, like the famous allegory devised by Hamlet:

Is it not monstrous that this player here,

But in a fiction, in a dream of passion,

Could force his [the King’s] soul so to his own conceit

(Shakespeare 270)

The allegory is, of course, educational; but just as the ancient king of Denmark in Shakespeare’s drama eventually proved unfit to read the allegorical message of the embedded play, so our present, more than ten years after the sentencing of Bernard Madoff—and ourselves as spectators to the unravelling of his Ponzi scheme—have been equally deaf to the message.

This deafness is undoubtedly a structural one, supported by a disposition to uphold a strict distinction between what morally suspect financiers do and what is the logic of the financial system at large, even to the detriment of a foreboding but better sense that these two are actually quite in synch. A mixed feeling, in other words, like the one encompassing both admiration for the financial wizard and the incipient suspicion that the system itself is somehow rigged. Psychoanalysis has taught us that the force of a rejection mirrors an affective investment. When rejecting the insight provided by the allegory—the formal homology as well as the practical metabolism between Madoff’s scheme and the logic of financialized capitalism—, our present might somehow obliquely be recognizing this lesson. At the same time, however, it must determinedly disregard it because it is strictly non-admissible within the present world-image.

This mixed feeling is probably nowhere more tangible than in the rapidity and vehemence with which Madoff’s crime was identified and denounced as a Ponzi scheme. Such a swift identification and denunciation are manageable for the cultural imagination, because they leave the actual interdependence between Madoff’s Ponzi scheme and the larger economical (and political) context of the fund’s activities in the shadows. Instead of taking in the allegorical lesson and recognizing the Ponzi-like character of financialized capitalism at the cusp of the 2008-bubble, the public eye on Madoff—again, ranging from yellow press to the New York Southern District Court—focused on Madoff’s fraud as “one of the most egregious financial crimes of our time” and as “extraordinarily evil,” as reiterated in 2020 by Judge Chun when rejecting Madoff’s bid for compassionate release. (New York Law Journal, June 4, 2020). Keep the focus on the man, we are told, and on the 11 counts to which he pleaded guilty. Let Madoff remain a metaphor of dishonest financiers—by all means, do not allow him to become an allegory of the financialized economy itself. Condemn the man, exonerate the system. Could we do otherwise?

Frederik Tygstrup is Professor of Comparative Literature at the University of Copenhagen and PI of the research project “Finance Fiction. Financialization and Culture in Early 21st Century,” funded by the Independent Research Fund Denmark 2018-22.


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