Why in the world would people smart in the ways of money forget the first maxim of investment risk when approached by silver-tongued Wall Street trader Bernard Madoff? The maxim: "If it sounds too good to be true, it probably is."
They lined up like willing sheep pleading to be fleeced. They gave Madoff an estimated $50 billion—that's billion!—of their own funds and those of others in possibly the biggest Ponzi scheme in memory.
This scam has been around for centuries in various forms. The Ponzi version is named after Italian immigrant Charles Ponzi, who promised 40,000 investors 50 percent annual returns on their investments in the 1920s, using the perilous mechanism of paying high interest with funds from new investors.
It's no consolation to relish greedy investors being robbed by Madoff as what they deserve. As the magnitude of Madoff's crime takes full shape, many victims are charitable institutions and foundations that rely on investment returns to fund worthwhile programs. Their investments have been wiped out.
But beyond the losses is another horrifying story: the unwillingness and/or inability of federal and state regulatory agencies to spot Madoff's madcap theft.
It was Madoff's two sons who blew the whistle on him, followed by Madoff's forlorn confession that, indeed, he'd been fleecing friends and associates for years.
It was common knowledge on Wall Street and therefore in the halls of the federal financial regulatory agencies that Madoff was making promises of wealth that were demonstrably impossible.
What was done? Cursory inquiries were made, but regulators walked away confused after scanning Madoff's books, not sufficiently equipped to recognize a charlatan at work.
The same cursory interest preceded the Wall Street meltdown, despite warnings from reputable critics of schemes involving the selling and reselling of investment paper whose only value was the wild-eyed high hopes of speculators.
Now the country is bailing out Wall Street wise guys, investors, homeowners, and Detroit automakers. Can a taxpayer bailout for Madoff's victims be far off?
The obvious needs saying: Successfully robbing a bank today of a few hundred bucks is far tougher than conning tens of millions of dollars from victims with the aid of incompetent regulatory agencies that are accessories to the crime.
When a new Congress convenes next year, it should strip away the cover of Wall Street crooks and give regulators the information and authority they need to clean up trading and restore confidence in the American economy.
