The infamous Bernie Madoff. So much has been said and written about him since the tale of his bilking both private and institutional investors hit the scene that I nearly didn't write this entry. But isn't it worth saying that Madoff can - inadvertently of course - teach us something?-The appealing culture of "my word is my bond" can be a trap. We like to believe that we can, through intuition and experience, determine that someone is good, honest, skilled, and trustworthy. Even today we often make deals on a handshake. The list of institutions, organizations and wealthy individuals that dealt with Madoff is troubling in part because each and every one of them wrongly depended on either their own judgment or someone else's, then entrusted Madoff with their money. It's hard to imagine completely abandoning our own intuition, but in the words that Ronald Reagan made immortal, "Trust, but verify." And certainly don't outsource the job. Don't trust a stranger to trust a stranger. Ever.
-And the Securities and Exchange Commission?? That's even worse because the SEC supposedly knows and cares about what it's regulating. Right? But the SEC gave Madoff a pass after a recent investigation of his operation. The jury (and there should be one, eh?) is still out on this, but the word negligence is too mild, and the word criminal may be just a starting point. Just saying. Sadly, here it is again: we can't trust strangers to take care of us, and apparently that includes the SEC.
-Little-known and poorly understood financial constructs (like Madoff's hedge fund) are dangerous investments, even if you're Steven Spielberg or an international bank. Abstruse mechanisms are sometimes that way for a reason. It's easy to get stupid in the search for way-better-than-average results, whether in love, finance, beauty, sex, or other matters close to the human heart.
-There must be other Madoffs out there. I hope I'm way off base on this, but suspect we'll uncover other investment frauds during the next challenging couple of years.
