[a] prisoner recalled [to Madoff] that he’d bilked his clients for millions.
Madoff corrected him: “No, billions.”
What an ass.
How long before Bernie Madoff ends up in summer blockbuster movie where the worlds financial instutitions are imploding and authorities from all over the globe agree he is the only one who can save the world.
“If I’d lived that well for 70 years, I wouldn’t care that I ended up in prison,” one said.
Sorry but I agree. I realize I’m going to get a lot of flames for this, but honestly if you are stupid enough to give money to someone who can’t even tell you where they’ve invested your money, you deserve what you got. Those people were so hot to be part of the ‘money’ crowd. I just don’t have sympathy for his victims. If you don’t know anything about finances and investing, someone like him is the last place you need to be putting your money.
I have a number of investments. I know what their rates are (they on the the statement I get quarterly, imagine that), I know what my return is (again on the statement), and I can get an annual report from the publicly traded companies I invest in.
It’s not rocket science. But massaging your ego by throwing your money away is seems to make it so.
It’s not that easy to understand the statement. The short time I worked with a brokerage house, I realized that the system is heavily weighted to keep you in the dark. The statements I got didn’t show how the fees impacted growth over time. Hell, it was a while ago, but I believe the fees actually weren’t even listed on the statement. You had to know how much you invested at a certain time/investment and then do the math yourself to see the results of the fees having been deducted. I’m not really explaining it well, but I remember being shocked that it was so hard to see the broker’s cut. My sense for it was the whole system was setup to keep you in the dark. Visits with the broker were more about scare tactics – Will you have enough money when you get old? Will your kids go to college? – than fiscally sound business practices. This was over ten years ago, so maybe things have changed, and I’m sure different people have different experiences, but it didn’t seem as cut and dry as you make it sound.
Tim, what I saw as statements as shown by the LA Times didn’t even identify where the money was invested. The statements showed how much money the person had invested and how much they had ‘made’ and that was it. I’m saying that my investments show who my financial planner has invested with, the rate over the last quarter, and the expected return for the next quarter from the rate along with a bunch of other stuff. Madoff showed nothing like that, according to the reports on the Times.
This is where I disagree. It justifies the scam artist. It’s the attitude that, while not directly related to Madoff, got us into this financial crisis.
It was lenders, homebuyers, and investment bankers using that attitude to justify fraud, just fraud of a different stripe than Madoff’s. Hey, if government pensions are so stupid that they are buying CDOs we’ve explicitly constructed to fail and bet against, it’s their fault. We’re the smart money and they’re the dumb money.
Edit: I know the thrust of your post is focusing on their greed, but a dumb person being scammed is no more just than a smart person being scammed.
Furthermore, Madoff did provide statements to his clients – statements which were largely accurate, except for the fact that none of the actual investments were made. From what I’ve read, the only way that someone would know he was screwing them was to audit those statements against actual sales in the market.
Yeah, maybe you don’t understand why people hire professionals to handle complicated shit that they cannot understand. You should hire someone to help you. Plumber bills don’t explain by what mechanism of fluid mechanics their ministrations provide relief, pharmacists only tell you what not to eat with the pills they give you, leaving you in the dark about the way in which a particular antibiotic inhibits the ability of certain bacteria to survive and reproduce on a cellular level, which, to anyone who works in the field, is rather basic to the understanding of the compound.
The only thing your request to know exactly where your money is invested would have gotten you is a fake printout of a bunch of numbers with the names of real mutual funds and companies that you do not actually own. If you ever would have asked why you made so much money on a corporation that subsequently went bankrupt, they would have told you that your printout was wrong, and should have reflected that they were shorting that stock for you.
Your financial planner could be doing the exact same thing to you right now, and you would have no idea. Just because a sheet of paper says you have money invested in a small corporation in Thailand does not make it so, and I am willing to venture a guess that you lack the capacity and willingness to independently confirm the reality of your investments.
That is why these scams are effective, because when you are with a legitimate investment firm, you still only own things you have never seen in a purely theoretical sense by virtue of a sheet of paper or electronic transmission that you can’t make heads or tails of without expert assistance.
No one ever deserves to be cheated when they are investing their money in what they have been led to believe is an honest, legal investment.
Madoff is getting what he deserves, but I have a hard time feeling that bad for the people that “lost millions”. I wish I had millions to lose in the first place. Not everyone has that huge cushion to retire in luxury, I’m pretty sure there were some people calling for Madoff’s death because of this. And if you invest huge sums of money with one guy, and your livelihood is depending on that money, you are being extremely irresponsible and it’s not complex at all to understand that. It’d be like investing all of your wealth in one stock, Madoff’s company being the stock.
Madoff was wrong, deserved to be jailed, and doesn’t deserve our pity at all. But I’m not sure I can muster up a lot of pity for those wealthier than the rest that put all their eggs in one basket. They didn’t deserve this, no question. No one deserves to be screwed over without committing some misdeed of their own. But do they deserve my pity? I only have so much to go around. I guess I’m just cynical.
OK, I looked further into this from both the LA Times articles and the Wikipedia entry. I will take back that the entries were vague, but I will still assert that the investors should have done some basic homework.
LA Times
Investors have to protect themselves by using some common sense. It’s financial gospel that no one makes a profit in the markets each and every year. Anyone who claims such powers should be viewed with the same suspicion as poker players who never lose.
However, unlike many other successful money managers, Madoff was reluctant to discuss his investing style. In his financial documents, he simply described capitalizing on market movements using stock options. But there were few details on precisely how he was able to put up those steady returns for so long.
Wikipedia
This is the problem with personality-driven investing. We want other people to take care of our money for us, and we usually don’t understand what they’re going to do with it. In fact, that’s often the point. Investment managers like to paint their strategies as so complex that only mathematical geniuses can understand them. As a result, investors are left to simply trust that these gurus won’t blow their hard-earned cash.
Madoff was a “master marketer”, and his fund was considered exclusive, giving the appearance of a “velvet rope”. He generally refused to meet directly with investors, which gave him an “Oz” aura and increased the allure of the investment. Some Madoff investors were wary of removing their money from his fund, in case they could not get back in later.
This is what I was referring to. Many people got caught up in this because they thought they were hot shit, not because it was a particularly smart thing to do.
Red flags
…Markopolos later testified to Congress that to deliver 12% annual returns to the investor, Madoff needed to earn 16% gross, so as to distribute a 4% fee to the feeder fund managers, who would secure new victims, be “willfully blind, and not get too intrusive”. In 2007, hedge fund advisory fund firm Aksia LLC advised its clients not to invest with Madoff, because of the appearance of limited accounting service personnel
Link to Madoff statement sent to investors
It doesn’t take long to investigate some of these companies to see what the real returns are. But the hot shit investors (that stayed; absolutely some of them left because of the issues that are raised here) didn’t.
I realize that because of my MBA that I may have a biased look at this. But I still don’t think it takes a lot of time to investigate exactly what any financial planner is doing. The companies that he or she’s using have public websites and their ROI can be checked. And if you can’t find a website for a company, that really should raise red flags. I also realize that some people like to play fast and loose in investments and therefore may make high risk decisions. But those people aren’t going to be complaining when they fail, like the Madoff victims did.
I agree with this too, and the SEC was yet again shown to be completely ineffective. I’m not sure if I’m fully dreading this new financial regulation agency they are setting up but I honestly don’t have a lot of hope that it will do much better than what they have. The problem is that the expertise to regulate this stuff has to come from industry and those who come from industry are too often tied to industry.
Also, if you were worried and researched Ponzi schemes, the vast majority are offering returns far higher (120% on the one busted in Miami last week) than the steady and just above average returns Madoff was offering.
A large portion of the (non-Madoff) blame lies with the regulators, administrators, prime brokers, feeder funds and other industry insiders.
Taibbi has another article on Rolling Stone talking about how various provisions of the new financial regulatory bill have been undermined or basically become a farce.
We had simple rules for mitigating and containing the damage of reckless investing, basically speed limits on leverage and investing. This idea that we are going to have regulators that are going to be ahead of the game is pretty absurd, even if they they were geniuses. It’s unfortunate congress doesn’t have the balls to go in there, break up institutions, and put the relevant rules back in place. Edit: Heck, we even had one regulator, Born who saw ahead of the game. The problem is no one else could or would.
That’s about the financial regulation more broadly, not anything to do with Madoff. Madoff’s ponzi scheme is outside the scope of what the new financial regulation is really about.
It shouldn’t be surprising that a bunch of relatively ignorant investors didn’t go looking their gift horse in the mouth - it’s the same reason why people don’t go to the doctor when they feel healthy even if they know they should, and why my doctor personally wants to fillet me into strips because I’ll be damned if I’m going to screw up my work schedule every three months so that I can tag up and he can write some junk on a piece of paper. The only thing they would have found out is that something was wrong. Everybody was better off leaving well enough alone until the whole venture went tits up and everybody still in got screwed.
The fact that this was a terrible, poorly executed fraud doesn’t make it any less of a fraud, and fraud is always a violence against others. We have regulators so that we don’t have to know the deep details of investment banking in order to put some money in the market. Uninvested investment by individuals ignorant of the work their money is being put to and unwilling to take part in governance of the companies and funds they contribute to is a significant problem, and I certainly think that most of these investors really ought to have been more diligent in investigating what they were doing with their money (I said the same thing about Enron), but I’m becoming more reluctant in my old age to blame them for their own hardship. We’re told to trust our regulatory agencies to check this stuff out and that leads us to exercise less stringent controls on our judgment. If we want to get rid of them then that’s one thing - we’ll all just have to be a little bit more diligent and researched - but if they’re going to exist, they need to do their job.
Yeah, you have an MBA, and you’re shitting on Kevin Bacon and his wife for not knowing enough about investment banking and the fantastic world of business. The whole point of you getting the MBA in the first place is so that you would know things that other people do not know, and your information and expertise would be valuable. I cannot stress this enough, we live in a society with specialized labor, and that often results in large portions of the population having no knowledge whatsoever of areas in which they do not labor.
You know what, I change my position, I think Sandy Koufax definitely should have known something was up. Definitely, for sure, Sandy Koufax has no excuse for not reviewing sale reports for foreign manufacturing corporations to see if their products will be competitive over the next three quarters. Of all people, Sandy, how could you be so intellectually lazy?
Madoff ran a hedge fund, which is a completely different animal than the funds us plebes get to invest in. There’s very little regulation (hedge funds can invest in derivatives, short sell, and do other things normal funds can’t do), not much in the way of reporting standards, and not a whole lot you can do to investigate how the hedge fund manager is handling the business. It’s a speculative investment that only the very wealthy have access to, and they operate mainly on trust, which Madoff was apparently good at engendering.
Sometimes – many times – hedge funds fail, but they fail because the manager made investments that went bad for one reason or another. That’s to be expected, and that’s why people don’t complain (or at least don’t launch lawsuits and complain to the media). Madoff’s fund failed because it was a Ponzi scheme, and I would be totally pissed and complaining to anyone who would listen if that was the reason my investment went up in smoke.
To a point that applies, but I can’t think of any of my relationships who wouldn’t be very skeptical if I told them I was investing with someone who produced 20% annually. There’s being taken because the guy is a good scam artist, then there’s being blinded by your own greed.
I say fuck 'em if they believed in fairy tales.
H.
So how’s your business spamming from Nigeria going? This is the rationalization of liars and thieves.
Again, because you know shit. You know shit about chicken restaurants and tire stores and biomedical engineering and the advertising budgets of pharmaceutical companies dwarfing their research budgets. You are not an ignoramus. This might not be your calling, but you are not totally in the dark. Also, no one is lying to your face right now. Take someone who does not really understand business and put someone who drove up in a Lexus telling them that they can afford a chalet in France from the profits from a moderate investment, and you will see what happens.
You realize that we live in a world where, for the last two thousand years, people have given up large portions of their income to men who show up covered in silk and gold, telling them that for a little money now, they can have an infinite amount later? In the mean time, men wearing silk have publically slit the throats of people who doubt the existence of the big pile of money, and our ancestors have cheered?
Never underestimate the power of a display of wealth, never underestimate the danger posed by a person willing to lie. People are not built to doubt, they are built to believe, and doubting is a skill and a talent that must be nutured and is conspicuously absent in large parts of the population. People will still demand to see the President’s birth certificate because a man they have never met said on television that it does not exist. They will even forget that they themselves have seen the birth certificate on television.
Hey, he MADOFF with their money! Get it?