I was a little ambivalent about Joe Nocera’s critique of the Madoff investors. In particular, the investors claiming that more regulation was needed may be self-serving but they’re also right; the SEC really should be able to stop a decades-long high-prominence Ponzi scheme. The fact that Madoff wasn’t cold-calling poor, lonely widowers shouldn’t be used to undermine the fact that very real regulatory failures occurred here (this may not be Nocera’s intention, but it could be an effect.)
Still, while where fraud is concerned even suckers deserve an even break, Nocera is certainly right that many of the Madoff investors were, in fact, egregious suckers. This article has plenty of examples, but I think this sums up for me:
If you want to know about Bernie Madoff,” said Mary T. Browne, the renowned psychic and author, who counsels many heavy hitters on Wall Street, “you need to talk to my friend Carmen Dell’Orefice.”
Maybe it was the same physic who told Fred Wilpon to invest some of his Madoff “profits” in a four-year contract with the decaying corpse of Luis Castillo. At any rate, I’m not sure when the “blaming the victim” line is unacceptably crossed, but I have to say that there are pretty distinct limits to the sympathy I can have for Aspen swells who brag about how “Bernie’s in T-Bills!” without ever stopping to wonder about how said investments could be bringing them 12 points a year. For many of the victims, Nocera is certainly right that if they didn’t know they were being scammed it was because they didn’t want to know.
With respect to the regulatory failures, this is equally telling (and scary):
The most relentless skeptic was Harry Markopolos, an accountant and private fraud investigator mostly unknown outside of Boston, who repeatedly sounded the alarm about Madoff to the S.E.C., starting in 2000. When the S.E.C. took no action, Markopolos began a crusade to prove his point. In 2005 he sent regulators a 19-page memo entitled “The World’s Largest Hedge Fund Is a Fraud.” He was referred to the New York branch chief, Meaghan Cheung, who, he wrote in an e-mail to one of her colleagues last year, didn’t “have the derivatives or mathematical background to understand the violations,” much less prosecute them. The S.E.C. eventually opened an investigation into Madoff but closed the matter in November 2007 without bringing any claims against him. Cheung, 37, who left the S.E.C. last September, had difficulty defending her findings in the Madoff case, telling the New York Post after his arrest, “If someone provides you with the wrong set of books, I don’t know how you find the real books.” Markopolos, who lambasted the S.E.C. in a congressional hearing in February, said, “I felt like I was an army of one.”
Yes, if someone lies to you, that’s pretty much the end of it; you certainly wouldn’t want to see if any of the lies check out. In particular, I can’t see the value in, oh, checking with some of the alleged counterparties in the fictitious trades that Maddoff was claiming to make and seeing if they were in fact made. I mean, they were in his books! Evidently, the S.E.C.’s hand were tied.
The Bush years: the catastrophic effects of incompetents regulating frauds who were frequently exploiting the greedy and/or the moronic.