Monday, September 14, 2009

A Fool By Any Other Name. . .

I had lunch on Saturday with a couple, two longtime friends from the east coast. We hadn't gotten together in over five years but at one point in our lives, we had been very close. It's the kind of friendship where even after five years, no subject is taboo. So after catching up, we started talking finances. She works in fashion; he's a research physician. Both of them were caught up in the Bernie Madoff scandal, and both of them were furious at the havoc wrecked upon their finances by Madoff.

The last time we got together, five years ago, we had laughed hysterically at the small town city council in my state who had actually used city funds to participate in what turned out to be a Nigerian scam. We marveled at idiots who were foolish enough to put their faith in an e-mail that promised them millions.

But my friends weren't laughing about Madoff. They "lost" over $600,000 in Bernie's New York version of Nigeria. I put quotations around the words "lost" because they didn't actually invest that much, but they understood that the investments they HAD made were increasing rapidly. Sadly, when the dust cleared, they were out $600,000 they thought they could count on, plus the hit that their other funds took during the current recession.

They just could not believe that people of their caliber could be scammed. The physician acknowledged that the most successful large-scale cons were usually aimed at doctors, actors, and Mormons. But though he is a physician, he's in research. Plus, he's not a member of the Latter Day Saints; he's Jewish. Plus, he's really, really smart, as is his wife.

Somehow, he expected that all of those traits would protect him from the Madoffs of this world.

I have to wonder if those attributes actually made him more vulnerable--that he felt so protected by his intelligence that he didn't question where his wonderful returns were coming from. Why was everyone else hurting as the economy slid into recession but Bernie kept their money coming?

My friends are hardly out on the street though neither one will be retiring quite as soon as they had hoped. They got rid of their Manhattan co-op (bringing a check for $22,000 to the table to do so) and moved to Park Slope. For folks familiar with NYC real estate, Park Slope is not exactly the poor side of town.

But the greatest damage was done to their sense of their innate ability to manage their money. They would never have fallen prey to the e-mail plea of a Nigerian general's widow but when the scammer comes clothed in your own religion, speaks your language and projects an air of financial sophistication?

Then, almost everyone is capable of playing the fool.


Florence said...

Oh my! That really hurts to be scammed by someone you really trusted.

Revanche said...

I've always had the feeling that there were scams and cons for every shape and size of saver. I'm sorry for your friends, but I'm glad they weren't made destitute by this mistake.

Sharon said...

I'm not so sure I would have passed up Madoff's returns on the investments ...feining "ignorgance"can be bliss, however, in this case... it was disaster..

Shevy said...

Regardless of how good the returns, 100% of your investments should never be in any one vehicle. This wasn't the case with your friends from what you say about their other investments taking a hit in the bad economy, but it was the problem with a *lot* of Madoff's victims.

As my husband says about the Howie Mandel game show (Deal or No Deal): Greed or No Greed? That just about sums it up. People see these incredible returns and they get greedy. And then they're surprised when they get burned and lose it all.

None of which excuses Madoff or this other guy in Montreal who apparently was trusted for years and then spent $12 million of his clients' money!

If it sounds too good to be true...

Anonymous said...

I think Madoff definately prayed upon the feelings of superiority that many of his investors felt. The rich get richer, right? So, I think a lot of his investors felt like it was only natural that they should have such fabulous gains b/c they were special - brighter, wealthier and just better than the common man. I mean, not everyone could invest their money with Madoff. The rest of us schmucks have to stick to T. Rowe Price ... but these wealthy investors had proved they were worthy of the greatness that was Bernie Madoff. They were *smart* and incredibly *lucky* to have the privelage of Bernie Madoff investing their money. Bernie knew this mentality and used it to help his scheme.

So, yeah, I think your friends' sense of their own intelligence and worthiness did contribute to their loss of funds. Do I think they *deserved* to be ripped off - absolutely not!!! But, I do think that Bernie Madoff knew the mindset of his victim very well.

Grace. said...

Anon, I think you nailed it.

Dawn said...

Interesting thought - does the very fact you are confident of your abilities and savvy leave a weakness that someone like Madeoff could exploit? I never even knew about Madeoff until the scandal went sour, but I could see being led by this same bait. Thanks for the food for thought!

Living Almost Large said...

It's not just the superiority but the greed. Exactly like deal or no deal. When do people actually WALK AWAY?

Never. They are always looking for more and more money. It's impossible to see someone walk away until they are nearly broke and lost it on the show.

My DH is like, If it were me I'd take the first case and be happy. Me? LAL? I'd probably go for it, the high of the risk might be worth it. The seeking of more.

And I bet a lot of people feel that way and very few could actually be like my DH.

CT Mom said...

"They would never have fallen prey to the e-mail plea of a Nigerian general's widow but when the scammer comes clothed in your own religion, speaks your language and projects an air of financial sophistication?

Then, almost everyone is capable of playing the fool."

Well said, Grace. Nice post.

impromptublogger said...

Just passing by on your blog but I have to comment that a lot of what happened was the fact that they couldn't believe that "one of their own" (a fellow Jew) would scam them! They expect it of others but not of somebody who seems to be a good man - a lot of foundations and charities have lost from Madoff too. I believe the same thing could have happened with say a Catholic man who preyed on other Catholics.

Maybe it's better that I'm a poor Jew after all.. ;-)

Bret said...

There is a systemic problem in the Financial Services industry. They have successfully avoided scrutiny and regulation, which has been disasterous for comsumers. Madoff, and Stanford are only the latest high-profile examples of what happens to many investors every day in America.

There is also a systemic problem with regulators. The SEC had received six complaints and conducted five separate investigations of Madoff. They never even looked at his books once.

Medical Alert said...

What a terrible thing to happen. Glad it didn't turn out as badly as it could have for your friends. Lessons learned, I guess.