Madoff, Stanford, the SEC and Us

The lessons to be learned from the recent rash of financial schemes are good but not new. Many or perhaps most of the investors had no idea what the money was being invested in or even who Madoff was. Some of these victims claim to have invested all they had into the venture. In many cases, "all they have" is far short of all they have in reality. People invested large chunks of money for two main reasons - greed and stupidity. The greed part comes from not being happy with what you have. Investing some money is the America and capitalist way and we all do it all the time. However, to extend yourself to the point or near point of being broke is greedy and stupid. In a typical account, someone with 4 million dollars is investing 3 million of it in this scheme. That is a 75% investment into something the investor doesn't even understand nor have any controlling opinion in. Clearly, the investment does not make sense. It defies our logic and sensible thinking. Yet many did it. The common factors in these investments also explain the motive for taking the risk. The typical investor knew someone that knew someone. The promise of a lucrative insider trade with high returns prayed on greed and superceded intelligent thinking. It is this same process that leads to bank robbery and other forms of theft.

This isn't to say that those that invested are criminals or that they deserve what they got. They are victims of a crime and some of those victims really didn't know any better. The majority however, should have known better. Ultimately, we must realize that Madoff, Stanford and others like them are not the only culprits. The SEC is charged with protecting us from just this sort of thing. In fact, it is their sole purpose. In these cases, they were warned, supposedly investigated and still missed it. I'm afraid this does not hold water. In both cases, monies were collected and supposedly invested in legitimate markets. If this were the case, there would CLEARLY be a money trail. In Madoff's case, he took money and did nothing with it but put it into a bank account. He would withdraw money for himself and he would use some of it to pay returns to demanding investors.

The trail here is easy for anyone to follow. I would venture to say a new kid out of college could track this much. So the question we should be asking is: What motivated the SEC to look the other way and brush their findings under the carpet? In other words, who took the pay offs? My prediction is that we will never know. The speed at which these cases are moving indicates a clear motivation to just end it. Our history shows a pattern of such cases taking years if not decades to settle. I will be quite surprised if Stanford does anything different than Madoff. They will remain quiet, take their sentences and be on their way. This course of action alone should raise our collective eyebrows. Madoff knows, at his age, no matter what the sentence, he is going to die in prison - so why not fight? Twenty years or one hundred and fifty years at his age is the same thing.

I have written many times that greed rules this country and perhaps the world. These men along with others like them already had wealth. The people that invested in them already had wealth. Yet the need of greed compeled one side to scheme and the other side to invest. Can there really be any doubt that greed played a role in the lack of action by the thrid party in the scheme - the SEC? If 100 million Americans or more do not demand action be taken in regards to the SEC, then nothing will ever come of it and this practice of bribery will continue.

In summary, the lessons to be learned are simple:

1. Know what you're investing in
2. Know who you are investing in
3. Only invest what you can afford to lose
4. And do not count on ANYONE to lok after your best interest except yourself.