Excerpt: 'Bag Lady Papers' by Alexandra Penney

Former editor Alexandra Penney's lost her life savings in the Madoff scandal.

ByABC News via via logo
September 28, 2009, 2:27 PM

Feb. 17, 2010— -- Former Self Magazine editor Alexandra Penney invested with Bernard Madoff money she had been saving since she was sixteen. When Madoff was arrested in one of the world's largest ponzi schemes, Penney lost everything.

In her book "The Bag Lady Papers: The Priceless Experience of Losing It All," Penney recounts the horror she felt when her live savings slipped away and her struggle to pull out of the dive.

Tune in to "GMA" Monday to see Alexandra Penney talk about the ordeal live.

Read an excerpt of the book below, and then head to the "GMA" Library to find more good reads.

Also, check out ABC News' comprehensive coverage of the Bernie Madoff scandal by clicking here.

Something terrible has happened but I can't remember what it is. I stumble out of bed, turn on the TV, step into the shower and stay there for almost half an hour with hot water streaming over me, hoping the negative ions will help lessen the head to toe panic.

I am paralyzed by the early morning news bulletins. More terrifying thoughts assault me, horrid visions of state-run institutions for sick old people where sloe-eyed attendants drug you and strap you to wheelchairs.

Paul has left a note on my mirror that he had to leave for home and to call him right away if I need anything. He'll check in with me later. I open the front door and the New York Times, as usual, is right there. I can only bear to glance at the headlines. It's all there: the MF's [author's expletive term for Bernard Madoff] confession, the Ponzi scheme, his admission that everything was a lie.

I'm close to nauseous with anxiety but once again, I must do something. I can't sit here alone. Then an idea hits me: I will go to the MF's offices. They are just two blocks away.

I dress as I would for any other day of working in the studio – jeans, freshly ironed white shirt (more about my numerous white shirts later), Hermes Kelly bag (purchased when I was an editor at Conde Nast – how much can I get for it on Ebay, I wonder?), goosedown jacket with the fur collar and small gold earrings from my mother. Dressing carefully in my normal clothes puts a bit of consoling distance between me and my bag lady fears.

It's not even 8 a.m. when I get to Madoff's building, but already people are milling around in the lobby. I am not the only one who has dressed for the occasion; fur coats abound. One older woman who is perfectly groomed and swathed in golden sable is leaning on the arm of her husband whose face is the color of green-gray breadmold.

I approach the lobby guard and say, "We are Madoff clients and we need to go up to his office please." Part of me knows this will never happen, but part of me thinks that as of yesterday, anything can happen.

When people hear me politely but firmly asking to be let upstairs, they all chime in. The blonde sable-woman says to me, "You've got the right attitude. Let's get up there! I've lost everything, everything."

I wonder how much "everything" means. Does she still have a huge Park Avenue apartment, a silvery Maybach, a casa in Tuscany?

I don't but I'm certainly a lot better off than many of these victims. I have a small daily-use bank account and a modest one-bedroom get-away house in Long Island that I bought ten years ago. I thought owning real estate would always be a good investment. I had a mortgage on the house and recently I took out a home equity loan on it as well, after listening to the advice of two different financial and tax planners who had been highly recommended by smart friends. Madoff was generating a steady ten percent return and the loans on the house were around six percent, so, as the planners explained, the four percent margin was meaningful.

I kept upping the home equity loan and taking out money to pay for living and for my photography studio expenses rather than depleting my Madoff money so that my savings with him would continue to grow. This morning I know that the Long Island shack, as I call it, will have to be sold ASAP. I have no money to cover the loan costs. Or even the gas and electricity bills. I've been living off the proceeds from my photographs and small withdrawals from my Madoff account every quarter since I rented my photography studio two years ago.

I also bought an inexpensive one-bedroom bungalow in Florida a couple of years ago with some of the money I'd made from writing and several photography shows. The Florida place was part of a pension plan that was set up by an accountant years ago when I first started to save money. I couldn't live or vacation in the Florida house because of my pension plan's legal restrictions but I always hoped it would be a good investment. I had painted the floors, walls, ceilings, and everything in sight in white, found some stylish white furniture at Ikea so that it would be an attractive place and I could rent it out to cover its costs. Now I'll have to sell it too. Whatever I could make on it wouldn't even come close to covering half the loans I owe for the house in Long Island—that is, if I could make anything at all. Home values in Florida have plummeted to the worst lows in the nation. And from what I've read it doesn't look as if this will change any time soon, but I have no time to wait for a real estate upswing.

And of course there's my apartment. I am hoping that if I can sell the rest I can stay in this place where I have lived for so long. If I can just remain in my home I will have some peace of mind, even if I have no more than a pittance to live on. Staying in my home would help me to get my bearings again and give me some sense of continuity. But who knows if anything will sell – or when? Every single aspect of my life is uncertain at this moment. Not knowing is hell. The worst kind of emotional hell.

Right now, standing in the expanding crowd in the MF's lobby, I will my self not to think about the apartment or I will have some sort of epic panic attack.

The group is young, old, in-between. Some look like bicycle messengers, others could be pharmacists and librarians and a good percentage look as if they go to the right barbers and have had subtle but expensive Botox jobs and mini-lifts.

Finally, a man descends from the upper reaches of the MF's establishment. He informs us that he is a lawyer and his name is Lee Richards. He is the interim 'receiver' for bankruptcy proceedings. He states coolly that it will take days or even months to establish any real facts. The crowd asks, "Is there any money there?," "Can we get insurance?"

One woman says, "I have only a small bank account left. I can't live on it. What should I do?" Of course Lee Richards doesn't answer. He tells us there is to be some sort of motion in federal court downtown this afternoon; Bernard Madoff will make an appearance before the judge.

I called my internist's office the minute it was open for business this morning. Now, after being sent away from the MF's lobby, I race to pick up my prescription for tranquilizers. At the Madison Avenue pharmacy I've been going to since my son was a baby, I wait a few minutes for my prescription, and while I wait, by habit, I check out the newest Chanel shades. From now on, I think grimly, I won't be able to afford even generic lipsticks at Duane Reade. When I was the Beauty Editor at Glamour magazine for a couple of years after college, I became infatuated with the expensive brands that messengers dropped off at our offices by the bagful, even though I quickly learned it was mostly chic packaging and seductive advertising that made them so costly and so 'luxurious.' To this day, buying a new lipstick at a department store has been a good pick-me-up when the world seems slightly out of whack. Now, obviously, I need something more potent.

Twenty minutes after I've left the drugstore, I'm staring at portraits of stern, WASPY, white-shoe founding partners on the paneled walls of my attorney's reception area. My father was a lawyer, and I've always thought of most lawyers as boring or on the make for new clients. But who can resist Michael? He does uncanny Goofy imitations while reviewing a will or advising on tax matters. There's no laughing Michael today though; instead, he is poring carefully over the MF's papers.

"It doesn't look good" he concludes, "These numbers don't match up." He says he'll talk to his colleagues who deal with securities fraud. There is an organization called Securities Investor Protection Corporation (SIPC) which maintains a special reserve insurance fund authorized by Congress to help investors at failed brokerage firms.

"Am I eligible for the SIPC fund?" I ask, for a moment allowing myself a smidgen of hope.

"There's no way of telling yet," he says, and I reach into my bag for a tranquilizer.

My mind is flooding with panic again as I race-walk back home to pick up my Blackberry which I forgot in my rush to get out of the house. I need to be connected to my lawyer and to Paul and to my son and to my friends.

The phone is ringing as I walk into the door. It's Mr. W from the US Treasury! I'm speechless. The US Treasury has called me – twice in 24 hours!

Mr. W is polite and perhaps a bit sorrowful as he says, "I'm calling to say that I haven't been able to locate a website where you might find out who bought the bills from that offering." I'm astounded by the phone call. But it tells me absolutely nothing.

Before I leave for the courthouse, where I will spend the afternoon waiting, fruitlessly, for the MF to appear, I call Ed Victor, the literary agent. He's represented me before and he's a good friend. One thing I know for sure is that I need work. Work and activity keep me sane, and will prevent me from wallowing in self-pity or fear. I haven't written professionally for over a decade at least, but maybe Ed can come up with something for me to do. I think of all the jobs I've had over the years, all the money I made that has vaporized in just one day. Oh my God, how am I ever going to make money now?

Since the recession began, the art market has plummeted. I'm not going to make any money selling my photography. At least if I sit and type, I can hold back the panic. Panic? What's a worse word than panic? Hysteria. Implosion. Full-scale terror. Body-crippling shock.

I explain what's happening to Ed and tell him that I need work, does he have any ideas? Four minutes later he phones back and says, "Call Tina Brown, she wants you to do a blog on her new website, The Daily Beast."

This may not be the answer to my problems but at least it's a start, and when in a crunch, I've always lived by my personal acronym of 3A's: Activity Alleviates Anxiety. Of course I'll call Tina back -- instantly.

I'm traumatized by the events of the last 18 hours and I don't have a plan but a blog is a first step. I've never been too much of a planner with one notable exception – my finances. I've always been relentlessly curious and for the most part, I've followed paths that I thought would lead to unusual experiences and new adventures. I've strongly believed in carpe diem while keeping one eye on financial security. And I learned from early on that the only person I could depend on to take care of me was me.

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