Madoff's Middle Class Investors

Jayne Barnard reports on watching Bernie Madoff's sentencing:

The most powerful voice in the room was that of Judge Denny Chin in a closely-scripted but emotionally resonant ruling. He cited the many middle-class victims of Madoff's fraud -- a theme deftly created by the U.S. Attorney's Office. He recounted the story of a widow who had gone to Madoff's office to thank him for protecting her family's weatlh. "You're safe," Madoff assured her. Judge Chin noted the many decisions victims had made -- sometimes for decades -- based on their mistaken belief in Bernie Madoff.

Perhaps I'm lacking in the empathy President Obama famously thinks judges need, but I have a hard time working up much sympathy for Madoff's victims--middle class or elite celebrities:

• If something seems too good to be true, it probably is.

• Anybody with the common sense God gave gravel knows that you don't put all you eggs in one basket. Diversify.

• Trust but verify. Better yet, don't trust.

• Nobody beats the market over time.

These folks wanted to believe that they really had found a great and all-powerful Wall Street Wiz and that there was nobody behind the curtain. So they ignored basic precepts of investing. They got burnt. Whatever.

Comments

[Daniel]

Of course! Anyone who believed that Madoff was capable of providing a consistent 13% year after year was either a fool, or fooling himself. I have very little sympathy for his direct investors. Those whose money was invested with Madoff through intermediaries have my sympathy, but hopefully not my money, because our benevolent dictator has not yet bailed out Madoff's investors.

[Alex]

Professor Bainbridge is so right. Why didn't these investors major in economics and law like he did? What were they doing that was so important, feeding their families?

[Matt]

I mostly agree. However, one possible exception would be in the case of Yeshiva University (and maybe others- I don't know at all), if reporters in the press were correct. (I'd hate to bet on that, but it's what I have to go on.) In that case, their investment adviser _claimed_ that he was following a diverse investment plan, but was actually secretly (the story went) investing everything with Madoff. How deep the fraud went I don't know. But it supposedly lead to Yeshiva being much more deeply hurt than they would have reasonably expected. Again, though, the news story might not have been fully accurate.

[MDF]

You can definitely beat the market; you just have to make your money off of fees rather than investments. Ask any successful hedge fund manager.