You think the Bernie Madoff scam is a surprise? Nope. It was just a surprise to his investors, since the SEC ignored repeated input about the guy's scam. It was not a surprise to anyone who cared enough, or was simply smart enough, to bother to look at facts. One smart guy actually tried to do something about it and was thoroughly ignored by the SEC. Why was he ignored? He tells the tale.
In short, lots of people know how to succeed, they have money to invest. Many have no commonsense grasp of, or any education in, investing, so they leave it to others. Madoff was among those who people trusted -- he was once chairman of the NASDAQ exchange!
Some folks simply cannot visualize what is possible or credible in investing. Some cannot see for themselves what is either screwy tricks done via poor lawmaking (many mortgages and highly "creative" financial concepts come to mind) or impossible dreams dressed up as a viable reality.
Harry Markopolos is just one of the ignored people who have been pointing out the OBVIOUS for many years. His big difference is that he made official moves, which makes him honorable, indeed. It also makes more vacuous the lack of REAL regulation over the "greed" industries: mortgages, stocks, hedge funds, derivatives, commodities.
Why do I call them "greed" industries? If you have to ask, then you don't really understand what the finance industry has to some degree been peddling over the years. There are a wide variety of viable investment ideas out there, and if folks fog over in any discussion of how investing, or money, works, then they are easy targets. It's sad, really.
When one talks of a bubble bursting in financial markets -- and in 2008 there was a few massive bursts -- one talks of overblown assumptions about the markets being dashed by a heavy dose of REALITY. Watch the CBS News 60 Minutes video, linked, with that in mind.
The Man Who Figured Out Madoff's Scheme - CBS News
It has been two and a half months since Bernard L. Madoff was picked up and charged with what is believed to be the largest financial fraud in history. Yet we still don't know much more about the alleged $50 billion scam than what Madoff initially told the FBI agents who arrested him.
Watch the video:
...For my point of view, this fellow underlines just what exactly went wrong with financial market regulation, not just of the SEC, but with regard to responsible finance practices all over the place, including mortgages and mortgage-derived investment packages. Our lawmakers fell down on the job, our regulatory agencies, our professionals in the industries -- they failed us.
Until a few months ago, Harry Markopolos was an obscure financial analyst and mildly eccentric fraud investigator from Boston who most people would never notice on the street.
But today he enjoys an almost heroic status, pursued by journalists and movie producers, and honored by colleagues as the man who went to the Securities and Exchange Commission and blew the whistle on Bernie Madoff and his $50 billion fraud.
But he seems uncomfortable with the attention, and knows that he is no hero. "I stand before you a 50 billion dollar failure," he said at an event.
Asked how many times he sent materials to the SEC, Markopolos told Kroft, "May 2000. October 2001. October, November, and December of 2005. Then again June 2007. And finally April 2008. So five separate SEC submissions."
"And in spite of all of the things that you did, it still ended up in disaster?" Kroft asked.
"There's nothing to be proud about in this case. I feel horrible about the result. It's been a total disaster for the victims," Markopolos replied.
It began a decade ago, when Markopolos was working for a Boston investment firm. His boss told him that Madoff, a former chairman of the NASDAQ stock exchange, was running a huge unregistered hedge fund that was producing incredible returns. He wanted Markopolos to reverse-engineer its trading strategy and revenue streams so the firm could duplicate Madoff's results.
"He had the patina of being a respected citizen. One of the most successful businessmen in New York, and certainly, one of the most powerful men on Wall Street. You would never suspect him of fraud. Unless you knew the math," Markopolos told Kroft.
"I mean, you're like a math guy, right?" Kroft asked.
"I've taken all the calculus courses, from integral calculus through differential calculus, as well as linear algebra. And statistics, both normal and non-normal," Markopolos said.
Asked how long it took him to figure out something was wrong, Markopolos said, "It took me five minutes to know that it was a fraud. It took me another almost four hours of mathematical modeling to prove that it was a fraud. "
- jR
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