“If you ask me to name the proudest distinction of Americans, I would choose- because it contains all the others- the fact that they were the people who created the phrase to make money. No other language or nation had ever used these words before; men had always thought of wealth as a static quantity- to be seized, begged, inherited, shared, looted or obtained as a favor. Americans were the first to understand that wealth has to be created.” – Ayn Rand
I read this week that the victims of supervillains Bernie Madoff and R. Allen Stanford have joined forces to lobby congress to compensate them for their losses. There are few people I have less sympathy for than the wealthy victims of a Ponzi scheme. These are not people whose homes were destroyed in a flood. They are not women whose husbands have died unexpectedly, leaving them widowed and poor. Rather, they willingly gave their money to a crook who duped them into believing he could do what anyone with a basic understanding of the stock market knows is a mathematical impossibility. With consistent annual returns of 10-12%, why bother with a savings? Whether or not they were greedy, they participated in something called the market. And as sure as day becomes night, the market rises and falls. The victims knew this. When it all came tumbling down, I’m sure it was a tough pill to swallow.
Unfortunately, you sleep in the bed you make. People fall victims of all kinds of scams. The Nigerian businessman who needs money to escape his country is, of course, not who he says he is. We react to people who actually send the money with a mix of laughter and pity. But we don’t open our wallets because we feel bad. Also, not all of them were duped – many put their money in hedge funds that then channeled the money to Madoff for a fee. In a cruel and ironic twist of fate, these victims – the ones who may not have even known they were invested in Madoff – get nothing from the SIPC, the government’s investor protection group. That’s life.
The good thing is that most of the country feels the same way and, hopefully, nothing will materialize. Some of these people were rich, some were not. The Madoff victims are the kind of people who hire lawyers specializing in tax shelters to help hide their money overseas. They support the Club for Growth and re-read Atlas Shrugged once a year. Having worked in development for only three months, my perspective is admittedly limited. I’m also aware that some might dismiss me as a bleeding heart. But I’ve seen the challenges associated with securing funding and the limitations caused by a lack of it. I’ve met people stuck in a poverty trap by the circumstances of their existence, rather than poor decision-making. And one thing I know is true: the money supporting the organizations that serve the poor is never enough.
One of the fundamental principles of economics is scarcity. How do you serve the unlimited human needs and wants in a world of limited resources? Everyone has a justified claim as to why they deserve something from the government, but we can’t accommodate everyone. My inclination as a taxpayer is to not give money to the Madoff and Stanford victims. From a cost-benefit perspective, that money is better spent elsewhere – education, healthcare, domestic and international economic development, etc. Let the distinguished bluebloods at the Palm Beach Golf Club sell the mansion and downgrade to a split-level. At least they get to see how the other half lives. But if they have enough to pay for a lobbyist, I’m guessing they won’t be slumming anytime soon. I’ll close with a quote from Peter Henning of the New York Times:
Ponzi schemes inflict enormous damage on those enticed to invest in them. In the end, however, it is hard to justify giving special compensation to the investors of Mr. Madoff and Mr. Stanford just because they lost significant amounts of money with little prospect of any recovery.