Bernard Madoff - made off with $50B. Are you fuming at the guile of the man to run a giant pyramid scheme, are you envious that he got away with it for so long, or are you asking “how could this happen”. The reason that Madoff and for that matter many other investment and financial experts got away with multi-billion dollar scams is that they preyed on two essential human characteristics. One is that most of us believe that we are not smart enough (do not have the time, interest, etc….) to understand the modern financial frame work. The second being, we do don’t want to miss the boat. Every body we know is making lots of money in the market, and we don’t want to be left behind.
If any financial instrument can not be explained then it is a scam. If the “expert” uses words that are not substantiated by facts, then he is a fraudster. An example used in the Madoff case. Fairfield a leading investment fund with ties to Madoff had in their literature for Premier Sentry fund billed their “value add” as a way to tap Mr. Madoff's trading expertise using "algorithmic technology" while Fairfield stood close watch, conducting "systematic investment compliance". Words to intimidate but really with no substance behind them, yet they got people to part with billions of their dollars.
Individual investors paid advisors who invested in funds that took lots of money in fees and commissions to invest in other funds that they knew even less about. So if the “business of investing” was not a pyramid scheme then what is? It is amazing to see fund managers who are very well paid, blame other fund managers for the losses they have seen in their funds.
The moral really is that the people you are investing your money with really don’t know that much more than you do, but hope that the people they are investing with know a whole lot more. This is a classic combo intellectual-financial pyramid scheme. The reason that these schemes work so well is because we all want to make our money grow by leaps and bounds. But then this is a problem only for the people who have money. The 3 billion plus people who don’t have any savings worth talking about wonder why $$1.5 trillion is being spent on bail outs and stimulus packages, and yet they don’t have enough to eat!
2 comments:
Very true Chandran...The so called financial consultants I met never have any idea what they are talking and what really happens to the investment. They just give you a few leaflets and show a few graphs; tell you to wait for at least 5 years to see the returns...and for this they are paid huge sums/ commission...Classical case of blind leading the blind!!!
Dear Friend, you are absolutely right. Still, I believe you are stating the obvious, but this tme it is good, it is important to remind the common sense.
Another angle where you might not be fair is associating all the finanacial advisors in the scam. Would you say that all the engineers are bad when a building or a bridge collapse or all the Branch Managing Directors are bad when a branch des not deliver the right numbers? There are plenty of serious and honest people in the saving world. Common sense needs to be applied in our investments as in all our decisions. Otherwise is gambling, not saving. The "syrens music and voices" have always been sweet and enchanting since Ulysses times, it is up to the individuals to keep the right routh.
Post a Comment