Sunday, December 21, 2008

Motive IS 20/20

Washington Post | Madoff played to two of our most serious weaknesses as investors and human beings.

As investors, we love to believe in market wizards who hold the secret to making serious money. In fact, there's no such secret, but admitting it is like abandoning a childhood faith. Faith propels the money-management business, despite the evidence that managers rarely beat the market indexes, over time. We especially love a fatherly wizard who's close to his children, plays golf, supports caring charities and lays expensive carpets on his office floor.

As human beings, we love status symbols and, to those who knew him, Madoff was status on wheels. Investing with him proved your wealth, position and general superiority to the poor slobs bobbing around on the fringe. His investors believed they were earning steady monthly increases of 1 percent or 2 percent, even when markets went bad. Who would dream of vetting such a prize?
Pam Martens is quoted at Counterpunch as saying; Of course many of them thought Madoff’s famous model was dubious. After all, how could the laws of financial gravity be defied, year after year, producing an unending yield (for the fortunate) of 10 to 12 per cent annual returns on capital invested. But the thought came with a knowing wink, that Bernie was scoring these huge returns, by being in the know, running on the inside track, using insider knowledge. As my father pointed out to me many times, many people have a bit of larceny in their bloodstream, and it’s what con men trade on, as Gogol imperishably described in Dead Souls.