fall has planted the seeds of suspicion. We now doubt those we have
done business with for years. The presumption of trust is gone.
By Nicholas von Hoffman
Dcember 20, 2008 “The Nation” — – The
news of Bernard Madoff’s $50 billion fraud has hit the investor/401(k)
class as nothing else — not the fall of Lehman Brothers, not the death
of Bear Stearns, nor the string of insolvency announcements of one
household name after another. Madoff is the blow that did it.
explosions connected with Madoff are expected. His story that for
decades he ran his gigantic fraud by himself is unbelievable. One man
alone could not have done the work of inventing and cranking out
thousands of statements every month, not to mention keeping track of
the comings and goings of billions of dollars. Madoff has confederates.
Madoff took some of the members of the centimillionaire club to the
cleaners is not what caused the shock. It is the damage done to so many
smaller investor/savers, so many pension funds, so many charities. You
do not have to be one of Madoff’s victims to be affected. Madoff, his
own businesses aside, was a major figure in the world of investments,
of stocks and bonds and securities and exchanges. If the former chairman of Nasdaq is a crook, whom do you trust?
has sown the seeds of suspicion everywhere. He has caused us to doubt
men and women with whom we have done business with for years. There is
no way of knowing if someone is a con artist. The presumption of trust
depends on trust, trust of all kinds. Trust that when you place an
order with a broker he or she will get you the best price, trust that
your investment or retirement adviser is not getting an under-the-table
kickback to put your old age money into a shoddy annuity.
is the indispensable element in all businesses. Contractors depend on
subcontractors to get the job done when they say they will; retailers
depend on distributors to deliver on time; lawyers are trusted to meet
filing deadlines, steel fabricators are expected to get gigantic
trusses to the building site exactly when they are needed. Doctors are
expected to put patients’ interests above money considerations; parts
manufacturers are relied on to deliver on time to the factory. Business
runs on trust, and Bernard Madoff has busted it.
So the Wall Street Journal says to its readers, “Could your investment manager be another Bernard Madoff?…
if someone like Mr. Madoff can be accused of running a $50 billion
Ponzi scheme, can investors anywhere sleep easy? Ordinarily, when you
are picking an investment manager or financial planner, you’re given
some common-sense advice. Avoid managers who are unknown, or
unregulated, or come without good referrals, or haven’t been in the
industry long. But none of this would have saved you from Mr. Madoff.
‘This guy had oodles of referrals, at the highest levels,’ notes Duane
Thompson, a managing director at the Financial Planning Association in
Washington. ‘He was [former] chairman of Nasdaq. He’d been in business
since 1960. ”
Fear, confusion and mistrust have been amplified by the absence of government supervision, regulation or policing. The Securities and Exchange Commission admits it did not do its job.
the closing down of the old-time pension system, millions of employees
were forced into 401(k)s requiring knowledge of finance, bonds, stocks,
weird-sounding investments and tax law. They have had to make
investment decisions effecting their future with no government
protection against misrepresentation, legal traps laid for them and the
small print obfuscation financial institutions practice on their
customers. The result is the heart-wrenching situation
for millions who fear that they will be living out the last decades of
their lives counting their food stamps and hunting for bargains in the
used clothing bins.
Madoff swindle puts the spotlight on the collapse of the 401(k)
retirement plan. The United States is the only advanced nation without
a complete retirement system.
401(k)s to have worked, a bull market or at least a flat market was
necessary. It was an unreliable gamble from the git-go, an arrangement
that would fall to pieces when next the market crashed.
and the crash underline the powerlessness of the millions. As a matter
of principle, the Republicans defended the unregulated lawlessness that
enabled a Madoff to run his swindles. As for the Democrats, sometime in
the Clinton era they sold their party to Wall Street and now they have
Chuck Schumer to make sure it stays sold.
It remains for President-elect Obama to void the deal and break his party free to help those who have nowhere else to look.