First off, I want to be perfectly clear on something . . .
Bernie Madoff got exactly what he deserved. We haven? yet printed a book too big to throw at him.
The point of this post is not to argue that Madoff is somehow not to be blamed for the wanton destruction he caused on other peoples?finances.
The point of this post is to underscore, once again, a massive breakdown in systemic safeguards and a massive retreat from reality by a whole bunch of people who should have known a whole lot better.
Randall W. Forsyth has laid out the various red flags that were ignored over the years by funds managers, investment advisors and even Madoff? own family in an article posted June 30 on barrons.com entitled ?adoff Is ?vil,?But Hardly Unique?(http://online.barrons.com/article/SB124632749654371491.html).
Forsyth, a veteran reporter who has been observing the Wall Street scene for close to thirty years, argues that ?he very idea that he [Madoff] acted alone utterly beggars belief.? Forsyth is not suggesting a criminal conspiracy with Madoff as the ringleader. He is arguing a tacit conspiracy of ignorance by the ?rofessionals?who were charged with preventing these kinds of financial rape-and-pillage sessions.
Forsyth characterizes the managers of the various feeder funds who kept Madoff supplied with capital as ?seful idiots who chose not to delve too deeply into Madoff? practices lest true due diligence might disturb the flow of hundreds of millions of fees they collected.?
There were some fund managers, though, who smelled something rotting in the Madoff empire a long time ago and refused to play along. According to Forsyth, James Hedges of LJH Global Investments stands out as one hero who refused to pony up billions of dollars of investors?money to feed Madoff? voracious appetite. ? have said over the years to many people: Do not touch Madoff with a barge pole,?Forsyth quotes Hedges as saying.
Forsyth? insights illuminate a sad reality that the proactive evil perpetrated by the Madoffs of the world cannot succeed without the cooperation of the passive evil of financial gatekeepers who elevate ignorance to an art form when confronted with the choice between competently discharging their professional responsibilities or making a ton of money.
We saw the Lucifer Effect at work in the financial markets with the mushrooming of derivatives trading and we see it again now in the muck left in the wake of the Madoff scandal.
Sometimes mass psychological dysfunction leads to genocide, sometimes it leads to oppression, and sometimes it leads to financial catastrophe.
Bernie Madoff? success at convincing intelligent and well-informed people to buy his snake oil points up a spiritual deficit in our culture that continues to imperil our national well-being. Tarring and feathering Madoff is a good start, but if we think we?e solved the problem because we?e ridden the rascal out of town on a rail, then we are tragically naive.
The Obama administration has rightfully proposed a series of new regulations in response to Madoff. They are but a start, however, in preventing future billion-dollar scams. It is only when we, as a culture, can summon up the moral fortitude displayed by James Hedges to resist the siren songs sung so convincingly by the billion-dollar scammers that we can begin to enjoy some measure of security from their predatory schemes.
I don't believe the reenforcement aspect of a Madoff-type scheme can be overemphasized. Madoff initially had a fear of the illegality of his dealings, but when the people he respected gave their money, it suppressed these fears past the tipping point. At some time, the Ponzi artist cannot go against the combined will of his contibutors. His universe beomes his supporters and his company. The SEC. the DOJ, etc. are not real. This form of mental illness of course does not rise to the level of exhonoration. It does, however, give a better perspective on the degree of venality invoved.
By Prof. Louis G. Vargo | Posted on July 18, 2009, 12:22 am
An intersting thing to note is tha Madoff rarely asked fro money from his victims, in fact, mostly all of them asked Madoff to take their money. Initialy, Madoff would refuse or try to talk them out of it. This just made his victims even set on getting their money into Madoff's hands. The ponzi scheme at some point started driving itself.
We also can't forget that the people who first gave money to Madoff made out like bank robbers. Who in turn promoted Madoff to friends as nothign short of God in the financial world which further drew in more victim.
What really gets my mind wondering is thinking about how this made friends become enemies. If one of my friends convinced me to invest all my savings with Madoff, would I blame them in the end for what happened to me? Would my friendship survive this life changing crime?
This had brought p memories of a financial problem I experience in the past. I used a credit union in Providence Rhode Island back in 1990. When the new governor ook over, he closed all the banks untill they can sort out the mess. My bank never reopenned, itwas littered with corruptionand had no money to cover its depositors money. My father old me "Dennis! Don't you first check out a bank before you do business with them!?". My reply would fit this Madoff situation, "Dad, all my friends use this bank, they have many branches and beautiful offices, why wouldnt I but my money in there?". I was sold on an illusion. I lost everything in one day, not only did I not get my money back, but it was New ears Eve, my monthly payroll check was just electronicaly deposited and all the checks I wrote durng my Christmas shopping started bouncing. Did this teach me anything? No.. Today I am with a larger bank, I judge the security of my money to a name now, to me, a national bank is better than a small county bank. Which these days the smaller bank might be a better risk..
By Dennis Megarry | Posted on July 31, 2009, 8:54 am
Clearly, going along to get along doesn't work as a system of morality. What, if anything, is strategically defined to take its place is the difficult task of examining the outcome, and identifying those protections that prevent them from occurring.
Though it doesn't take brilliant minds, it would not be harmful to include them, since conceivably the brighter the mind, the more effective the solution - but not always.
The alternative is to embrace the many types and styles of Madoff like scams which take place daily, and which substitute for responsibility though they may far from ideal as legitimate protections.
This may be one of the situations where majority rule really does count to prevent the minority from usurping majority rights, or a pandering majority to exile a weaker minority as in the case of Wall Street and its relationship with the SEC.
By Pat | Posted on August 15, 2009, 8:38 pm
Certainly Madoff took advantage of a lot of existing trust relationships and created an impressive facade, but he also benefited from a key flaw in his highly intelligent and successful target audience. In Michael Shermer's book Why People Believe Weird Things he points out the irony that very smart people often the most tenacious at holding onto incorrect beliefs because they are exceptionally skilled at building rationalizations.