Sleeping in the Bed You Make

“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

Wine on the beach tastes better when it's stolen.

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.

Cry me a river.

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.

Good luck getting any sympathy from this frigid bitch.

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.


10 thoughts on “Sleeping in the Bed You Make

  1. Doug

    You do NOT know what you’re talking about. Most Stanford victims were/are not rich.

    Read further and learn some facts.

  2. john Galt

    While one could blame Ayn Rand for some of the the crash of 2008 (more below), it is not possible to blame her for the Madoff ponzi scheme and she certainly would be strongly opposed to any financial recompense for the investment losses by the Madoff “victims”. The quote about her supporting the making of money is out of context. Rather, she was in favor of capitalism and the ability to make money by hard work and by creating a better product or technology or idea that would benefit humanity while also helping the inventor/entrepreneur and she was opposed to those who “made money” by manipulating money for their own benefit i.e. those who only invested the money without doing anything. Even Midas Mulligan, the banker, invested his own money in a product/technology that he felt was beneficial and also helped the inventor create the product. The Madoffs and their investors were what Ayn Rand would call the “looters” and in fact she had no sympathy for them, even enjoying their fall and loss of money. She clearly would have been incredulous about anyone who gave money expecting unrealistic returns for doing nothing.

    She would highly support the idea of micro-finance as well as financing the “not completely poor” since they were producing products that would help others (solar lanterns) while also helping themselves. These individuals or groups point to the power of capitalism since it is their idea, they are taking the risk and with their own hard work will get the benefit. This is capitalism at its finest.

    As to her involvement in the crash of 2008, as was pointed out in the excellent recent book “Why Markets Collapse” by John Cassidy, Alan Greenspan’s concept of Ayn Rand’s views of no market regulation clearly show that while capitalism and the free markets of Adam Smith, Milton Friedman and Ayn Rand, can work in theory, they do not always work in the largest scale of inter-related governments and banking. Some regulation is necessary to prevent the James Taggert cronies in the book “Atlas Shrugged” and the Goldman Sachs bankers in 2008 from looting the society. She (and Greenspan) assumed that the free markets would prevent Goldman from almost destroying the world of finance. She and Greenspan were wrong because Goldman was so intimately involved in the government and because the regulators had failed. Therefore one can make the point that had Greenspan (and others) used only some of Friedman’s and Rand’s views, but also incorporated some regulations on markets and banks, the crash might not have happened and certainly would not have been so bad. Had Paul Volcker been at the helm, the crash would not have been quite as bad.

  3. Josh Weinstein

    It wouldn’t make a difference. Whether or not they are rich doesn’t change the general principle that they willingly participated in something that had the potential for loss. Stanford and Madoff are investment managers. If you try your hand at the market, don’t come looking for restitution when you get burned. Instead, maybe put that money toward helping people like, I don’t know, say Katrina victims. In a world of limited resources, you make choices.

  4. Ronnie Sue Ambrosino

    Mr. Weinstein,

    I wonder what investments or banks you have your money invested in? I wonder if you did your homework to ensure that they are protected by the FDIC insurance, or by the SEC to make sure your broker has been thoroughly vetted?
    I wonder how hard you worked for that savings and what life determining decisions you made based on the fact that you had a nest egg?

    As a Madoff victim I trusted my government agency (the SEC) to do their job. They failed. Now, they are turning their back and saying -oops we blew it. I think that it’s understandable for citizens to expect them to take sort of responsibility for that failure. We are asking that the SEC stop failing American investors. The SEC has the opportunity to ensure that SIPC follows its federally mandated statute, yet once again they are failing.

    Mr. Weinstein, for your benefit and for the benefit of every American citizen who trusts the banking system’s FDIC insurance and the investment systems’s SIPC protection, I would suggest you research the facts and report that neither protection is fool proof and all are vulnerable to the same plight as the Madoff and Stanford victims.

    Ronnie Sue Ambrosino
    Madoff Victims Coalition

  5. Joe

    If Mrs. Ambrosino was lobbying Congress for the Federal Consumer Financial Protection Agency or a beefed up SEC then this post wouldn’t exist. Instead, she thinks that her failure to fully research an investment opportunity – she admits that she didn’t realize it wasn’t covered by the FDIC, proving she is either a terrible investor or feigning ignorance – and the admitted mediocrity of the SEC demands that she be repaid at the expense of everyone in this country who managed to avoid being duped- but who suffer the consequences of the actions of people like Mrs. Ambrosino anyway. It’s a bizarre argument, like demanding a refund from the police because they didn’t break up the three card monty game before you got hustled. If you don’t have the sophistication to participate in high risk investments, then there are other options available to you: treasury bonds, hedge funds, mutual funds, et al. I’m sorry for what happened to you, but I see endless examples of more pressing uses for federal largess than a bail-out of Ponzi victims.

  6. Josh Weinstein

    You are the second person here to suggest that I “research the facts.” But you both are missing my point. I have the good fortune to work in a field right now where I meet people who have never had anything to lose. They work harder and longer than you and I, and still struggle to eat. They do not retire at 52 – in fact, they do not retire ever, because they can’t. A “nest egg” doesn’t exist, because they don’t have enough money to save. And I hear stories from friends about their aunts and uncles who had their pension (read: life savings) slashed when GM collapsed and are now going back to work. Are you going back to work? Of course, none of this would matter if Uncle Sam could just go out into the backyard and pick a few bills off the money tree. But, as I said before and will say again, we live in a world of scarcity. I have read your story and I do feel for you. I do not feel like you got what was coming to you, as some people would say. But I do see what the impact of the money that would go to you could have in helping far more people than your 350-person coalition. So I stand by my argument.

    I invest in the following companies:

    Ford Motors

    I have no reason to distrust the SEC. If Microsoft turns out to be a fraud, I’ll have no one to blame but myself.

  7. Wilkie

    It is absurd to assume that those who invested with Stanford or Madoff are immune to hardship. A large portion of the Stanford victims are quite elderly and there are many suffering from cancer or waiting for organ transplants. You don’t have to work in a field to suffer losing a husband. There are many Stanford investors who live in southern Louisiana. Some did lose there homes during Katrina, and others were there to open there homes to evacuated families.

    The Stanford investors are not looking for a government handout, nor have they hired a lobbyist. The point is Josh, that the SEC knew for years that Stanford was a dirty crook and they did nothing to stop him. They are not crying because they lost money in the stock market. They are asking the SEC and our government to become accountable. Stanford Group Company was a SIPC insured brokerage and the investors are entitled to SIPC coverage. SIPC insurance will not make all of the investors whole, but it is a way to compensate for a scandal that could have been prevented and wasn’t. You could say that the investors are victims of not only Stanford himself, but of the SEC and the DOJ, as well.

    Of the investors, those who can have gone back to work. They are used to working. That’s how they acquired the money to invest. Most saved it over a lifetime. I’ll bet not one of them has a money tree in their backyard.

    It just may be that you are missing the point, Josh.


  8. Josh Weinstein

    That’s a straw-man argument. I never made suggested that Madoff/Stanford victims are immune to suffering. I did say that there are people more deserving of government support than Mrs. Ambrosino. But this isn’t a debate about who has suffered more. There are a lot of valuable programs being cut right now. The U.S. has to make choices and sacrifices about where we allocate money. From what I understand, the Stanford Bank was in Antigua and not covered by the SIPC anyway. So, in a perfect world, we compensate all. But in a world of limited resources, we pick our battles.

  9. klerg

    While I respect that both the Madoff and Stanford victims got screwed and am generally skeptical about free-market economics, I have to agree with Josh’s assessment and also need to bring something that concerns me about this.

    Whether or not the Madoff victims get SIPC money depends on the whole “net equity” argument and that’s headed for the appellate court. But I’m not sure if the Stanford victims even have an argument. As Josh just stated, the Stanford entity that sold investment products to customers was Antigua-based and not stateside; therefore, not under SIPC’s umbrella. The Stanford company as a whole may have misled customers into thinking that these specific products had SIPC coverage, but that’s not SIPC’s fault. But for argument’s sake, let’s say that these investment products, mostly CDs, did have SIPC coverage. The Stanford customers got their CDs as I understand it: they just dramatically and rapidly lost in value. If the customer has the security, I don’t think SIPC’s ever reimbursed people in this situation.

    My point is, the Stanford victims are not like Madoff victims whose money was flat out stolen by someone via a ponzi scheme. They are more like the Enron victims who brought a security whose value decreased after it was discovered that the security’s parent company was committing fraud.

    Maybe SIPC’s made an exception to this in the past…can someone cite a case?

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