Some of Bernie Madoff's property is up for auction. While selling his wares to raise money to repay those he scammed is a good thing, isn't it kind of unsettling for people to want to own things formerly used by a fraudster? What does Judaism say about this?

First, if it's unsettling for anyone to be connected to Bernie Madoff, I would suggest that they not purchase any of his goods. Fundamentally, though, while Jewish law attaches sacred significance to certain goods that were sanctified for Temple use, such a concept does not apply to cotemporary chattels (a fancy name for goods, just to mix it up). People may attach sentimental value to goods, but we cross over into superstition, a very un-Jewish idea, when we believe that Bernie Madoff's or any other criminal's goods bear some sort of "kooties".

It is also important to briefly note that Jewish law does not recognize the legal construct of bankruptcy, whereby one can absolve oneself of various debts with such a declaration. According to Jewish law, one must pay back one's debts to the best of one's abilities, and can not be absolved of this obligation until one has completely paid off the debt or the creditors forgive such debt (there may be some exceptions to this rule in the commercial context based on Jewish law's interaction with secular law - i.e. the concept that "the law of the land is the law", but that is a much larger discussion). Thus, while Madoff will never be able to undo most of the terrible damage that he inflicted upon hundreds of people, using his goods to repay part of his debts is a start. Were he not in prison, he would be obligated to work and funnel all of his earned money to his debtors.  Even after his death, the obligation to pay off his debts would enjoin his estate until every last penny is repaid.