Posts Tagged ‘mix’

Dec

The Madoff Dream and the Mad Cow Disease

The Madoff Dream and the Mad Cow Disease, what do they have in common?

They spark schizophrenic fear, they put economies onto a halt, every business in the sector gets quarantined at the slightest hiccup and the farmers always lose their shirts…

Does anyone have a logical explanation for everything that happened in regards to Madoff and his fund?

Honestly, I believe that no logical explanation seen the light yet and that more ink has to dry off till we find one. And, I believe that the rabbit’s hole is deeper than it seems. We may never find out the truth. Is Madoff just the tip of the iceberg, or has he decided to take the blame for himself to cover someone else?

And for the thousands of investors that believed in Madoff, the dream just vanished… And it is always hard to accept a scam… Due diligence? Big banks with tens of analysts got screwed. This makes me think that the analysts were not as experts as they thought or something else happened. What SEC did to prevent the fraud? Can not answer. I have a better question: from his 200 employees, where was the Risk Management and where was Internal Compliance and Control? Has really nobody seen anything fishy going on? No stories yet about them… And then, we start to really question the independence and the power of a function as long as you work for somebody.

I will cite some of the journalist impressions, as seen in the last few days:

“A scam artist like Madoff to deceive not just widows and orphans but also sophisticated investors” (LA Times)

“The smartest guy in the room” fallacy. […] You create a smoke screen of impenetrable complexity around your operations and call it brilliant innovation. So long as you go on delivering bankable returns that can’t have any other honest explanation, some people — even sophisticated ones — simply will assume that it’s because you’re smarter than everybody else.” (LA Times)

“Wall Street big hitter accused of the largest investor swindle perpetrated by one man” (Times Online)

“Did Madoff investors overlooked the obvious? Signs point to safeguards being ignored – and safeguards prevent pyramid schemes, advisers say.” (Boston Globe)

Really…? If it was that obvious then why nobody stopped him earlier? I just have the feeling that this is just “the post confirmation bias” - once something has happened, it always seems so obvious… (see more on The Blinding Obedience to a Paradigm)

Or it was just pure luck that “Bernie” got to have his own hedge fund and once in place, he did not know… how to make the returns he promised. So maybe one of the strategies did not pay-off and he started “putting his hands deep into the customers’ accounts once”, to save the face, the Great Expectations about him. And then, maybe the crisis and the market caught him deep in. And this where the “bad” investment manager psychology comes into play: “If I lost a few mil and I cannot recover, what do I have to lose if it gets worst?” And his Ponzi scheme came in?

It’s just that mix of intricate psychology, conjuncture and randomness that we, as human beings we just cannot grasp its meaning. It’s just like in dreams, we cannot explain what triggered them and if they really mean something. In Madoff’s case it was the dream that the investors bought in and got nothing… I just cannot figure out more!

See more in Press Display or for French speaking in Le Point FR

This post has featured on:

- the 12th of January, on Sequence Inc - The Carnival of Fraud

- the 11th of January, on Dollar Frugal - The Carnival of Wealth, Money and Life

- the 7th of January, on G7 Financial - The Crisis Carnival 01

- the 2nd of January, on Sports Blog - The Carnival of Gambling, thanks to Jim

- the New Years’ Eve, on Colorado Health Insurance Insider - The New Year’s Cavalcade of Risk, thanks to Louise

- the 30th of December, on The Money Gardener - Investing Carnival, New Year’s Eve edition, thanks to…

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