Madoff’s $50 Billion Scheme: What Should the Government Do?
Stock markets around the world are reeling as a result of the Madoff scandal. Madoff is alleged to have taken in over $50 billion of investors money! And, instead of investing it wisely as he had promised to do, he is accused of running a Ponzi scheme.
One of the big questions on most people’s mind is, “Where was the SEC? Isn’t it their job to protect investors from exactly this kind of fraud?” Well, the government doesn’t have any good answers for this question, but here’s one idea for you.
After the Great Depression, the SEC was created to protect so-called investors from themselves. The Great Depression was sparked by the stock market crash of 1929. Clueless investors bought stocks without understanding their underlying value, or how markets work. When millions lost large amounts of money in the crash, the government stepped in to protect them in the future.
However, it’s not the government’s job to take care of the finances of the people. Savvy investors will always make money, while the majority of investors, who are unskilled and uneducated will lose money. The government cannot prevent this from happening any more than it can prevent rain from falling.
How is this possible? Because, even when most investment managers do their job, they still lose their investors money! As I detailed in a previous post about Bill Miller, even good mutual fund are a poor investment. Virtually all mutual fund investors have lost so much money in the recent market downturn that they are disappointed at best, and completely freaked out at worst.
So what’s the solution? One solution is to control your own investments. The challenge with this strategy is that it requires skills. It requires both investing and financial ability. These abilities are not taught in school. Therefore, if you want to learn them, you will need to get educated on your own.
Related posts:
- Madoff and the Mutual Fund Industry
- Secret #6: The Government lets Mutual Funds Charge Hidden Fees
- Secret #5: The Largest Ponzi Scheme in the Country is Medicare
- The Hundred Billion Dollar Tax On Investors
- The Secret ‘Get Rich Never’ Scheme Of Financial Advisers
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is one of my favorite financial books of all time. It's an allegory about a guy who has a terrible job, and how he overcomes challenges to achieve his dreams.
Maybe they could appoint Madoff to head up the Social Security Administration.
He’s been able to run a billion-dollar Ponzi scheme, why not a trillion-dollar one?
matt,
LOL.
What should government do?
They should put him on trial as they seem to intend.
As far as a bailout of his fund or managed investments, the government should do nothing. Act as if the the matter does not exist. Nothing will tighten accounting standards more effectively than suspicious investors who realize the government will not intervene to bail out losses from fraud.
Besides, as readers know, there is no way to be equitable. Those who invested with him and withdrew the supposed returns for years made fortunes. Those who reinvested their returns lost all and paid taxes on it to boot. And those who came latest lost eveything.
Years of litigation and tax refiling will never unravel the situation. At most some will recover a portion while making others suffer more. And some who profited will escape altogether due to the time elapsed and the poor quality of records.
The bailout intervention is failing badly. It not only hasn’t improved finances but it has destroyed any faith in honesty or fair play as people see that some are rescued, others are not. And that who you know, and how convincingly you can scare people in DC is paramount.
Who has any belief that one party caused this? Or one politician? Or one decision or regulation. It is seen, perhaps not expressed but seen, for what it is, the total failure of governments around the world to impose even a mild restraint upon the financial sector.