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Bernie Madoff was sentenced to 150 years in prison yesterday. Madoff is already 71 years old so he will probably leave much of that sentence un-served.
Even if the judge could somehow order Madoff to live long enough to suffer for the entire 150 year sentence it would not help investors get their money back. Most of their money appears to be lost. Some investors blame the Securities and Exchange Commission for missing warning signs of Madoff’s scheme. That may be a valid claim but it won’t get the investor’s money back without legal action. There are no winners in this mess.
However, there are lessons to be learned from this scandal. The Obama administration wants to prevent future scams by instituting new banking and consumer protection regulations, including a new Consumer Financial Protection Agency. I wrote about this new agency last week. The President’s plan might provide consumers with some extra protection. However, this additional regulatory agency will more likely lull investors into feeling safe and secure when they’re not. Regulatory agencies are as fallible as the humans running them, and criminals will always find their way around the rules when there is money to be made.
Remember that Madoff anesthetized investors with the promise of his professional reputation backed by financial reports investors had reason to believe met the criteria of a sound, financial regulatory infrastructure. The Madoffs of the future, the crooks, and fast-buck artists that hide in the legal fine print, will again create confidence schemes using the premise of strident regulatory oversight. These future crooks will catch investors that have grown too secure in their confidence that regulatory overseers are watching over them. History always repeats itself.
Neither the President nor Congress has done anything to encourage consumers to protect themselves or even understand that they have the primary responsibility to protect themselves. In fact, every action since the onset of this crisis has taught Americans to rely on government. That dependence is creating conditions for the next round of crooks.
Until consumers learn financial self-defense, regulations will provide the props for the scammers.
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If someone deposits their savings in a bank, they don’t expect the teller to run off with it and be told that they should have done their due diligence. Why should investment advisers and money managers, hiding behind unregulated securities, be able to get away with cons and theft while it’s all the investor’s fault? Anyone allowed to take in investor deposits should not be allowed to actually touch the money and third parties passing along funds need to be held accountable for verifying the legitimacy of fund accounts. This black box, behind the curtain money handling should be illegal period. Scams like this happen because money managers have been bribing and paying kick-backs to legislators and regulators. Blaming it all on investors is a guise.
The one principle still applies. If it seems too good to be true, it is!