International Law

Why the Madoff Ponzi Matters

Image via Wikipedia

CNN is just wrong in arguing that the Madoff fraud doesn't matter.

"Granted, it's only been a week since Madoff's arrest, and we may find out more details about the alleged Ponzi scheme that could wind up causing more market volatility.

Still, it is encouraging that investors seem to have tuned out the cacophony surrounding Madoff.

"When this story first broke, I was worried that this would be a touchstone for a complete erosion in confidence in the markets. I've been remarkably surprised that the market has responded reasonably well to this revelation," said Jack Ablin, chief investment officer with Harris Private Bank in Chicago.

It makes sense, though.

Even if big U.S. banks start to emerge as investors whose money Madoff made off with before getting arrested, it's hard to imagine how this scandal could cause much more damage to a market that's already dealt with several crippling blows in the past few months."

Here is the big problem: hundreds if not thousands of individuals knew that Madoff was somehow skimming.  No reasonable person believed in the option story: there wasn't enough volume in those markets to contain the Madoff trades.

Madoff is going to be the Kitty Genovese of finance.

"During the 1960s, when there was no shortage of drama in the nation's courtrooms, one murder case stood alone in its ability to shock the country.

The crime was not as gruesome as some others, since many more were just as violent, and still more that easily surpassed it.

The victim was an ordinary working girl, not at all wealthy and not a member of any elite class.

Her name was Catherine Genovese, the 28-year-old daughter of Italian-American parents.

But to millions of people who read her story when it first appeared in New York City's press, she would forever be remembered as "Kitty" Genovese. What happened to her, what happened to all of society on that dreadful night in the spring of 1964, would reverberate across the country and generate a national soul-searching that is reserved for only the most catastrophic of events.

And nearly 40 years later, her name has become synonymous with a dark side of an urban character that, for many people, represents a harsh and disturbing reality of big city life."

Madoff's sophisticated neighbors stayed silent as he murdered the dreams and hopes of his investors.

We are a long way from seeing the end of this fraud.

Here is what we can expect more of, loss of confidence in the capital market system :

"A well-known wealthy entrepreneur told me last night that he'd lost about 1% of his net worth on an investment in Madoff and is setting about getting his money back from every hedge fund that he's invested in."

Full post as published by Misleading Advertising Law on December 19, 2008 (boomark / email).