Wiping out my savings is one thing. Wiping out Bubbie and Zadie's is something else entirely
A reader who has been through the experience of having tons of money and then suddenly not having it anymore writes:
I decided to think of the people who lost money in the Madoff scam differently today. At first, I had a vision of old family "blue blooders" who find every tax loophole to keep and make a dime being the real losers here. Heck, I lost $300mm in paper value in 2000-2001 so my first reaction was "I know how that feels"! I thought that it will make people stronger and they will learn to live without all the fake luxury things that don't really make you happier. Flying in coach with the rest of the world has a great way of bringing you back to earth. So I guess I laughed at the situation.
Today, I changed my mind. I read about a lot of people who were carpet salesman and charity workers who got smeared. I think of large charities that were taken out and the impact it has so many less fortunate. ... This can be compared to a flood or a hurricane ripping apart farms and business in a natural disaster. The difference here is there is no FEMA to jump in and rebuild. There were many elderly victims who can't just go back to work.
My father in law told me last week that one should only put $250k in a bank as that is all that is really protected. He told me that balancing money is how to sleep at night. I wondered how all these people didn't do the same?
Then I remembered how I didn't sell any of my company stock in the bubble. So I was right there making the same miserable mistake. It was a lesson! But for me, I was 42 years old when it happened and I could recover.
I've been having similar thoughts (except for the part about losing $300 million). For the bankers and fund-of-funds managers who got caught up in this I feel nothing but Schadenfreude. But when I think of all the Jewish grandmothers and grandfathers (a.k.a. Bubbies and Zadies) who lost everything with Madoff I get very sad. They weren't being greedy, and they weren't stupid. They just wanted a steady investment managed by somebody they knew and trusted.
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1
based on today's NY Times article *http://www.nytimes.com/2008/12/15/business/15palm.html), Madoff would not even consider taking you on as a client unless you had at least $1 million in assets to invest with Madoff.
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Bubbie and Zadie may have to downsize somewhat (sell that Palm Beach residence and moving to Boca will give them a nice big chunk of new cash), but they aren't going to be suffering. Your wealthy correspondent should save his pity for auto workers and people who would never come close to qualifying to invest with Madoff.... -
2
The Washington Post says this morning that about 70% of people are hit, not a surprising number with so many people losing jobs and considering that the 50% of Americans who have stocks lost some money. But Madoff is adding insult to injury and it is a blow to many charitable institutions. I disagree with Plukasiak: having money is not a sin (I do not have any, but I do not recommend it). I care for all people who have a hard time, their original social status should not matter to us.
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I disagree with Plukasiak: having money is not a sin (I do not have any, but I do not recommend it). I care for all people who have a hard time, their original social status should not matter to us.
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my point is that the Zadies and Bubbies affected by the Madoff fraud are not experiencing 'hard times' -- these are people who will be left with substantial assets even if they had all their "cash" invested with Madoff.
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I'm far more worried about the middle and lower middle class people who bought into Wall Street's Big Lie -- that stocks were always the best long-term investment, and have watched as their 401Ks have tanked. Wealthy people aren't going to suffer -- they will be merely inconvenienced. -
4
@plukasiak: Let's take a hypothetical autoworker retiring at age 55 with a $2,000-a-month pension. An annuity with that same return would cost $426,000. Plus the retiree health benefits must be worth another $100,000 or so (that's a guess). So that's not in an entirely different universe from a Bubbie or Zadie who owned a business (and thus has no pension) and had $1 million invested with Madoff. Now most of these people had more than $1 million and many own valuable real estate (a lot less valuable than it was a couple years ago, but the same is true in Detroit). But I think a few of them will actually suffer. At least they've still got Social Security!
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Justin Fox, you are right as usual. A small independent businessman has to scrape a lot of money to get a decent pension, and the invested money represents a lot of sacrifices. We cant shred off an independent house painter or the owner of a small wine shop any more than an autoworker. Once again, it is not my case: I got a small civil servant pension from Europe which is shrinking with the exchange rate and I can see the bad tide coming in (my choice though, no complaint). Plus, the real rich people that Plukasiak is thinking about probably did not lose any money at all: Bill Gates, for instance, said that much recently.
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While Madoff may have had a $1 million minimum for investments in his fund, the "feeder funds" that took Bubbie and Zadie's money and gave it to Madoff may have had much lower minimums. The Bubbies and Zadies probably had to meet the SEC "accredited investor" standard of $1 million minimum net worth in order to invest in the feeder funds, but that is not exactly a high threshold these days (or at least it wasn't when houses were worth more).
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But on the other hand, the subscription documents for a private investment offering (such as Madoff's fund or the feeder funds) often include a representation from the investor along these lines: "The investor is in a financial position to withstand loss of his or her entire investment in this fund." If only the investors had taken those representations seriously. -
7
Justin...
since you seem to find no difference between (approximately) $526,000 and a million, please forward me the "irrelevant" near half million dollars. I'll set up a Nigerian bank account for our mutual convenience.
- foxjust About to walk to LA Public Library for this http://bit.ly/7LgRu6 Am told only a nobody walks in LA - 1 day ago
- foxjust just took first ride on LA metro. Totally disorienting not to have car to park here - 2 days ago
- foxjust Thanks to Bama fans for reminding us we needed to buy TP! (Turns out we're fine on detergent). Oh, and nice game #ironbowl - 1 week ago
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