The Shared Blame for Madoff

"Everyone was greedy," Bernie Madoff once said. "I just went along." That's a little convenient, but then there's been a lot of revisionism since his scams were exposed. Plenty of people say they'd never have fallen for his offer of 12% annual returns, but Helaine Olen writes in an opinion piece in the Washington Post that a lot of smart people bought what he was selling. They included famous people, financial professionals, and the managers of university endowments. They weren't all naive or greedy; a lot of them were looking for steady, not spectacular, gains for their investments. And they were looking for security. Madoff realized, Olen writes, "that typical investors weren’t looking to score the Next Big Thing (today’s Amazon or Apple), but that they didn't want their investments to keep them awake at night, fearful they would or could lose it all." They didn't find security or steady gains: Madoff was running a Ponzi scheme that defrauded his clients out of billions of dollars over decades. He died Wednesday in a federal prison.

Plenty of responsibility for not pushing back enough on this con man belongs to Madoff's clients and financial partners. But if you want to see the real incompetence that allowed this to happen, Michael Hiltzik writes in a Business column in the Los Angeles Times, look at government regulators. And "if you're wondering if a Madoff-scale fraud could happen again," Hiltzik writes, "the place to watch is the SEC." The agency seemed to be impressed by Madoff's Wall Street credentials, and accepted his explanations when he was caught in lies, the SEC's inspector general said. "The relatively inexperienced Enforcement staff" was skeptical about complaints it received, the investigation found, even one that showed the returns Madoff was reporting were a mathematical impossibility. The SEC cut back on enforcement under President Trump, but closer oversight under President Biden has been promised. That's reassuring to Hiltzik. "One lesson of the Madoff scandal," he writes, "is that any lessening of vigilance over the investment industry can cost billions." Olen's column can be read here and Hiltzik's here. (More Bernie Madoff stories.)