Bernie Madoff gets his sentence. Have we learned anything?
Bernard Madoff got his sentence this morning. It's 150 years in prison, which is a bit longer than your average 71-year-old can be expected to live. (Curious Capitalist Jr. was actually wondering about this yesterday—what if, he asked, Madoff got sentenced to 150 years but doctors discovered new life-extending techniques in coming years that enabled him to survive past the end of his sentence? When I told him Madoff was already in his 70s, though, he decided the chances were pretty slim.)
A business commentator feels compelled to comment on an occasion like the Madoff sentencing, but what is there left to say? Bob Lenzner interviewed me, mostly about my book, for one of his regular Forbes.com videos this morning. He asked about Madoff, and the best I could come up with in the context of the book was that the Madoff experience seemed to be a great argument for Harry Markowitz's approach to portfolio diversification.
If Madoff's clients had only put 5% or 10% of their assets in his Ponzi scheme, it just wouldn't have been that big a deal. Instead we have for months been hearing story after story about individuals and families and even foundations that put all their money with the guy. These weren't the kind of folks who spend much time reading Harry Markowitz or Burton Malkiel—instead, they didn't want to have to think about their investments at all. They wanted to leave their money with somebody they trusted, and get on with their lives. Which is a pretty reasonable desire. But, it turns out, a dangerous one.
Of course, none of this explains Walter Noel or Ezra Merkin or any of the other professionals who steered money to Madoff. It doesn't explain the SEC's unwillingness to dig into Madoff's affairs after Harry Markopolos (no relation to Harry Markowitz) tried to blow the whistle on him. It doesn't explain Madoff's wife and kids seemingly looking the other way for decades. It doesn't explain my egregious failure two years ago, when moderating a now-YouTube-famous panel discussion featuring Madoff, to grab him by the lapels and yell, "Stop this Ponzi scheming, man!" Most of all, it doesn't explain why Bernie Madoff did what he I did. I do wonder if, now that he's got so much time on his hands, Bernie will decide to tell us.
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1
"Most of all, it doesn't explain why Bernie Madoff did what I did."
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I think there's a typo in this sentence somewhere. Unless you're trying to inadvertently confess to running a multi-billion $ ponzi scheme. Or I'm just missing something that should be obvious. -
2
@Sean DeCoursey: Thanks for the catch! Although, if you have several millions you wish to invest, I'm willing to promise you steady low-single-digit returns.
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3
Replace "I" with "He". Yeah. That makes about $1million times more sense. Thanks.
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4
The people who "lost everything" are also responsible for their fate. Every 1st graer is taught: "Don't put all your eggs in one basket" (then in 2nd grade they begin calling this: "diversifying your portfolio"). But much more important than this: The guy went to Hofstra for God's sake !!! Who in their right mind turns over their entire life's saving to someone who went to Hofstra ???
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5
To the question in your title "Have we learned anything?"
Unless we do some serious SEC reform, I'm going to say "no". The truth is, Madoff is a snake just like those before him and the many more to come. In no way can we stop the existence of snakes. But we can at least do a decent job of protecting our society from them.
The SEC proved to be a complete failure in this case. The guys we actually pay to catch this stuff just missed it completely. Like they missed lots of stuff.
But I don't honestly feel it's the SEC's fault. They're underfunded and have no legal teeth. Heck they don't even really set the filing regulations, the accountants do that. I just keep hoping the "Madoff scandal" is really a reminder that the markets continue to be shark-infested waters and that we're still doing a poor job at catching sharks.
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6
We all had learned nothing: people who consider modern US stock market a glorified Ponzi scheme had nothing to learn, others are simply unwilling to accept this reality and yet others are simply unable to comprehend these relatively complicated matters.
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However, nobody can deny that it is was big fun to watch it unfolding. -
7
The real story here is how did an unlicensed Financial Advisor pratice for over 30yrs and despite investigation the authorities, was never questioned or prosecuted.....and then he became Chairman of the SEC. All the rest is easy to explain - greed or stupidity, probably both.....!!
- 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
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