Sunday, March 15, 2009

Look in the mirror ...

Being I live in NY, I've gotten to hear more than my share of Bernie Madoff's victims (most of them lived here) whining on my TV about how screwed they are.

Listen to me, those of you who invested your "life savings" with this asshole on the promise of 46% returns. You have no one but yourselves to blame. Forty-six percent???!!! If it weren't for your own greed, you wouldn't be scraping for every dime now. Nobody asked the hard questions of Madoff or they would (should) have taken their money and run for the hills (the mattress at the least).

Which brings me to an interesting article in the Times I found via Dday:

...

And yet, just about anybody who actually took the time to kick the tires of Mr. Madoff’s operation tended to run in the other direction. James R. Hedges IV, who runs an advisory firm called LJH Global Investments, says that in 1997 he spent two hours asking Mr. Madoff basic questions about his operation. "The explanation of his strategy, the consistency of his returns, the way he withheld information — it was a very clear set of warning signs," said Mr. Hedges. When you look at the list of Madoff victims, it contains a lot of high-profile names — but almost no serious institutional investors or endowments. They insist on knowing the kind of information Mr. Madoff refused to supply.

...


A little due diligence would have saved many people from ruin*, but the same impulses that inspired people to buy houses that common sense said were way out of their league were at work here.

...

I suppose you could argue that most of Mr. Madoff's direct investors lacked the ability or the financial sophistication of someone like Mr. Hedges. But it shouldn't have mattered. Isn’t the first lesson of personal finance that you should never put all your money with one person or one fund? Even if you think your money manager is "God"? Diversification has many virtues; one of them is that you won't lose everything if one of your money managers turns out to be a crook.

...


My 'financial guy' is someone Mrs. F used to babysit for and not everything is with him. I trust him, but only so far. You also have to know something about money, your money, especially if you're trusting someone else with your future dreams. I am, by no means, qualified to invest on my own but, by golly, I know where all my investments are.

When I saw what was happening in the mortgage world (4 years ago), a phone call to my guy made certain everything we had in mortgage-backed securities was liquidated and put somewhere else. I could have made more, probably, but I thought the crash would happen earlier. It is our life savings (it's gonna buy us our retirement home in Paris and allow us to live our "golden years" in a place we both love) and I ain't taking unnecessary chances with it.

If some idiot comes up to me and says I could make 46% on my money I'd laugh and ask him what drugs he's taking, because even the most profitable investments don't return half that (unless you're a loan shark). These folks just saw dollar signs and refused to consider the reality (or refused to educate themselves enough) that shit doesn't work that way unless you're doing something illegal. Many of Madoff's investors (I've seen too many interviews with them) had an inkling he was trading on insider information, but didn't want to ask questions so as not to rock the boat and derail the gravy train. If you don't investigate what's being done with your money, you can't bitch when you get taken for a ride (hey, people still fall for those Nigerian email scams), and you'd better not come looking to me for a 'bailout'.

...

And that’s the point. People did abdicate responsibility — and now, rather than face that fact, many of them are blaming the government for not, in effect, saving them from themselves. Indeed, what you discover when you talk to victims is that they harbor an anger toward the S.E.C. that is as deep or deeper than the anger they feel toward Mr. Madoff. There is a powerful sense that because the agency was asleep at the switch, they have been doubly victimized. And they want the government to do something about it.

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The only thing the government owes these people is a refund of the taxes they paid on the ersatz 'profits' they earned through Madoff. It's one thing to help out the folks who got in over their heads with a mortgage (it affects my property value if my neighbors go into foreclosure), but I'll be damned if any of my tax money goes to people who engaged in willful ignorance when they should have known better.

...

But why? What happened to the victims of Bernard Madoff is terrible. But every day in this country, people lose money due to financial fraud or negligence. Innocent investors who bought stock in Enron lost millions when that company turned out to be a fraud; nobody made them whole. Half a dozen Ponzi schemes have been discovered since Mr. Madoff was arrested in December. People lose it all because they start a company that turns out to be misguided, or because they do something that is risky, hoping to hit the jackpot. Taxpayers don’t bail them out, and they shouldn’t start now. Did the S.E.C. foul up? You bet. But that doesn’t mean the investors themselves are off the hook. Investors blaming the S.E.C. for their decision to give every last penny to Bernie Madoff is like a child blaming his mother for letting him start a fight while she wasn’t looking.

...


Yes, Madoff is a crook, but if these folks want someone to blame, they should look in the mirror. And let that be a lesson to the rest of you out there. If something sounds too good to be true, it probably is. Do your research and pay attention to what your money is doing and make sure it's doing what you want it to do. That's what the quarterly statements are about. It's your money and if someone swindles you out of it, nobody's gonna give a shit but you.

*Those who invested with Madoff indirectly through "feeder funds" may have some recourse suing the funds themselves, but those who invested directly, with Ol' Bernie himself, are probably fucked.

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