Lipman: Is, is there a way that this could have been detected earlier? We believe now that it's gone back, what, at least 15 years? It was going on probably while you were at the SEC. Is there anything that could have been done, or are there any mechanisms that we could put in place now that would catch this kind of fraud?

Pitt: Yeah, I believe there are things that need to be done. I think you have to start with a recognition that when somebody is hell-bent on committing a fraud, a deliberate fraud, and maintains multiple sets of books, the government, even at its best, is always going to be well behind that person—they're covering their tracks, they're creating things. That doesn't explain what happened here, because in this particular situation, the SEC had a lot of contact with Madoff, starting in '92, '99, 2005, 2006, and they had a roadmap to the fraud. And somehow, they never got it, and it's clearly a case at a minimum of human failure. But there are systems that would be better.... The difficulty you have is you can't take young people, two, three, four years out of college, pay them $50,000, $60,000, $70,000, and expect them to have the sophistication to assess a $20 billion hedge fund. They're just not ever going to be capable of it. What is needed is a system in which everyone who takes money from the public should be inspected either every year, or, for smaller firms, perhaps every other year, by a completely independent, wholly outside, expert entity subject to oversight, and requirements by the SEC. And that way people will be examined continuously, every year. Now, if somebody's deliberately committing a fraud, they still may be able to get away with it. The problem we have is that when the securities laws were set up in 1933, public companies were audited by outside experts, not by the government. And although we've had problems when those outside experts have done it—so it's not foolproof by any means—they at least have the expertise to find things. I think we need compliance audits and examinations of anyone who takes money from the investing public.

Lipman: Now, Jim, you've had some ideas on how people like yourself, as a short seller, are incentivized to find fraud. You're incentivized because you're rewarded by the markets: If the stock price goes down, you are rewarded. Is there any similar incentive system that would allow people like you to be able to ferret out frauds such as a Madoff fraud?

Jim Chanos: Keep in mind, if Bernie Madoff had been public, he probably would have never gotten as far. Because I believe the marketplace, whether it would be short sellers or journalists, would have been on this a long time ago. In fact, there hasn't been one major financial fraud that I can think of in the past 25 years that wasn't uncovered by an internal whistleblower, a short seller, or a journalist, or some combination thereof. It is not the outside auditors that do it, it's not the outside counsel that does it, and it's not government regulatory or law enforcement agencies that uncover these things. It's usually someone with an axe to grind or an incentive, and that is the reality of the marketplace. Smart criminals tend to get away with crimes. And also, to Mr. Wiesel's point, I don't know if it was Jesse Livermore, Bernard Baruch, or someone like that who once said, the greater the mania, the higher the intellect that succumbs to it. And those are really apt words. As the financial juices get flowing, as they certainly were a few years ago, we begin to suspend belief in what normally would be a situation where one would equate risk with reward, and would be skeptical of anything that appears too good to be true. When everybody's making money, it's very easy to set that aside.

Lipman: You know, Mr. Wiesel, one of the major issues we've heard with Madoff is affinity fraud. The idea that as a Jewish person, he was able to prey on other Jews. Do you think that that is relevant in this case?

Wiesel: Absolutely not. When Ponzi was revealed, the people [didn't] write in the papers "the Catholic, or the Protestant, or the Italian Ponzi." He is the "Jewish Madoff"—why do we do that? That's something that remains probably in the subconscious attitude of some people.... They remember Shylock and the classic accusations that Jews are linked to money. Not at all. He is simply a crook, a thief, a scoundrel.... It's not the Jewishness in him, it's the inhumanity in this man who simply believed he can go around depriving people of their livelihoods. What he has done to certain people, it breaks my heart. With us, [and other people] who gave him their money and now lost their apartments, and have to go and live with friends or with family; and old people—it's incredible what he has done. But the man was not only a liar, a swindler, but ... he was somehow always more than that. More. Once you enter evil, it's not static, it's dynamic. You go deeper into it. In the beginning it was a small thing—he tried to cheat a bank or something, and then it went further. At the end he went down to swindle thousands and thousands of people, and hurt thousands and thousands of people. Take our little foundation. My wife takes care of a thousand Ethiopian children in Israel. What he does to them—we were going to open a third center in Jerusalem. We cannot do it now. What [he has] done to others, to hospitals, to educational institutions, my God! Didn't he think?

Lipman: In your two dinners with him, were there any red flags raised, did you and your wife have any discussion of how does he do this, was there anything that seemed off about him at all?

Wiesel: Joanne, I remember that it was a myth that he created around him. That everything was so special, so unique, that it had to be secret.... It was like a mystical mythology that nobody could understand. Just as the myth of exclusivity, he gave the impression that maybe a hundred people belonged to his club. Now we know thousands of them were cheated by him.... Really, we spoke mainly about education, believe it or not.... He wanted me to leave Boston University, where I have a chair, I teach, I have a chair in the humanities, and he wanted to bring me to Queens College, and I said, "Gentleman, they are my friends in Boston, and I have a rule, I remain true to my friends." So we spoke about education really.... Surely not about the economy.