Sunday, February 8, 2009

Quantifing the Madoff Affinity Scam

Madoff will go down as one of the greatest criminal masterminds in history. Yesterday I saw a large graffiti portrait of him on a wall, with the words "Free Madoff". Then there are the golf "sleezeballs". It is fascinating that what seems like a small crew of people could perpetrate what probably is the largest official scam in history. I say "official" because there are a number of theories out there linked to the central banks around the world, as well as my personal opinion on the so-called "bailouts" going on right now. I digress.

The NY Post rival, the NY Daily News has posted a list of the victims here. All 163 pages of it. I read somewhere it had 82 lines per page. I have no idea why anyone would publish it. It seems like a large scale violation of one's privacy, and can make the people on the list targets of crime, be it ID theft, home intrusion, burglary, etc. Not unlike the case up in Maine when some guy from Nova Scotia used the sex offender list to shoot and kill two people on it before taking his own life. The state stopped publishing home addresses thereafter. May be it is just a case of schadenfreude.

But since the genie is out of the bottle, I did a little data gathering. It has been widely reported that the Madoff scam was of the "affinity scam" variety, targeting Jewish investors. Affinity scams are well known: the scammers use an affinity (be it nationality, ethnicity, church affiliation, vet status, alumni, hometown, you name it) to trick their victims into believing whatever the story is. Most people instinctively trust people like themselves more than people who look or talk differently. I just read somewhere a piece on the role that Spanish-speaking real estate salesmen (frequently also mortgage brokers) played in steering low-income non-English speaking homebuyers into absurd loans.

I opened up the . pdf document and searched for several common Ashkenazim surname fractions (both beginnings and endings). Here are (the not so surprising) results. Like my previous test with the betting system, it sounds like it came out from the Institute for Stating the Obvious. Keep in mind that these endings are also common in traditional German and Russian names, and, thus, are not necessarily indicative of ethnicity.

*man/mann- 2,592/71
*berg/burg- 905/95
*tz- 816
*stein- 401
Gold*/Geld* - 392/0
*sky/ski- 203/93
Rosen*- 203
Roth*- 175
Cohen- 135
*baum- 111
Silver*/Silber*- 93/5
*thal- 76
Rubin* - 56

I am excluding "off", "zer" and "ing" because the occur too often in the document (i.e. Madoff, Switzerland). They clocked in at 261, 73 and 2,299.

I have to admit that the inspiration for this post came from Freakonomics: there is a chapter there on the influence one's name has on his life. It is a fascinating read, and the chapter is available on Slate. Here's the conclusion:
"The data show that, on average, a person with a distinctively black name—whether it is a woman named Imani or a man named DeShawn—does have a worse life outcome than a woman named Molly or a man named Jake. But it isn't the fault of his or her name. If two black boys, Jake Williams and DeShawn Williams, are born in the same neighborhood and into the same familial and economic circumstances, they would likely have similar life outcomes. But the kind of parents who name their son Jake don't tend to live in the same neighborhoods or share economic circumstances with the kind of parents who name their son DeShawn. And that's why, on average, a boy named Jake will tend to earn more money and get more education than a boy named DeShawn. DeShawn's name is an indicator—but not a cause—of his life path."

May be having one of the names/name fragments I searched for above means a higher likelihood of having been a Madoff victim?

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