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Dash of Pepper

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The Power of a con man
The Gazette Staff
Reaction to the Madoff affair is interesting. If you been in Antarctica for the past few weeks, one Mr. Bernie Madoff is alleged to have made off with billions of dollars in what some have termed the biggest Ponzi scheme in history.
I'm not a financial person but from what I've been able to glean, a Ponzi scheme involves getting initial investors to give you money with the promise that you will guarantee a certain return, in this case, a consistent 10 percent. You build confidence via a track record of living up to the promise. But that involves getting newer investors to buy in and using their funds to pay off the first investors, and eventually the house of cards implodes.
Mr. Madoff is alleged to have done this for quite a long time and taken in some people and organizations you would think are fairly sophisticated.
Most reactions remind me of the great old German word - schadenfreude. It loosely means that one takes secret pleasure at the misfortune of one's adversaries or someone you secretly envy, although in public you are obliged to say "Gee, I'm really sorry you lost your millions."
Certainly, many wealthy individuals lost money in this scheme and few among us are about to haul out our hankerchiefs in sympathy. But it's useful to remember that these are not all trust fund babies. Some are people who worked hard for their money and now find themselves having to start over, if they are at an age where that is still possible. Stealing from the wealthy is still a crime. Only the government is allowed to do that.
However it does puzzle me that few questioned the sheer consistency of the returns on their money. Even small time investors know that returns are not consistent. A traditional mutual fund might have a great year at 12 percent, a bad year at four percent, and average out around eight percent.
Did the investors believe Mr. Madoff truly possessed some secret no one else possessed? Something that strikes me about it is what seems to be a lack of curiosity on the part of the investors. In human terms, this could be attributed to anything from laziness to a lack of self-confidence in financial matters. Personally, if I had substantial means to invest, I'd seek several reputable sources for advice and I'd be tracking, at least on a monthly or quarterly basis, what the funds were doing. If you read any books on finance and investing, you know that the word ‘diversity' is repeated over and over again.
Sadly, it's true that some people who knew of Madoff's activities tried to ring the alarm bells but apparently they never really got through to the powers in the Securities and Exchange Commission.
Mr. Madoff's modus operandi is interesting in terms of human nature. He gave an impression of being highly selective. That is, he built an image that his club of investors was highly exclusive and he wasn't interested in some guy with a couple of hundred thousand lying around. He was after big money, from New York, from Palm Beach, from around the world. He bestowed on his investors a special sort of cachet.
Another tragic part of this affair is that many foundations and charitable organizations were also caught in the net and now have nothing, or almost nothing left.
It's easy to say "if it sounds too good to be true, it is." That's obvious. It's even easier to write it off as the result of greed.
But it also demonstrates the power of a charming grifter, the force of personality of a con man. I think people were mesmerized.
I wonder if somewhere, a playwright or screen writer is pondering an almost irresistible opportunity to develop a fascinating morality fable around this story. All the raw material will be easily available soon.
Last Updated on Friday, 12 June 2009 14:17  

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