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Stan and Ollie are in prison for selling beer during prohibition: Ollie: "Well, here's another nice mess you've gotten me into!"
Stan: "What do you mean I got you into?"
Ollie: "Well you sold that policeman that bottle of beer didn't you?"
Stan: "I thought he was a streetcar conductor." - Pardon Us (1931) – Laurel and Hardy The question many people are asking is: “How did we get into this financial mess?” First we had (and still have) the mortgage crisis. Is it a matter of greed? Ignorance? Many homeowners were convinced to take on mortgages that were completely wrong for them. Home buyers were told that they could afford a much larger house for a low monthly payment. Interest only loans. Adjustable interest loans with low interest rates at the beginning. No one considered that interest rates would go up while home values would go down. All of a sudden a monthly mortgage of $1,000 jumped to $3,000. But buyers did not think about this scenario. Mortgage lenders did not tell the buyers about the risks involved. We all bought into the American dream. We all drank the Kool-Aid. On a different scale, Bernie Madoff was the mastermind behind a $50 billion Ponzi scheme. How could this have happened? The people conned by Madoff were very smart people. According to reports, Madoff was very charming, generous, and highly regarded. But does the real fault lie with us? As humans we have the propensity and perhaps the need to believe that everyone is essentially good. We see what we want to see and ignore what we don’t want to see. In the case of Madoff, he built a network of contacts that trusted him. This is what we call “social feedback measures” where people invest because other prominent people invested. If someone came to me and said Bill Gates or Donald Trump invested then why not me? Hey, they are smart people: it must be a good investment. Some investors even questioned the high returns of Madoff’s investments; but hey, why argue with what is working? It was greed, ignorance, or perhaps both that got his investors in trouble. It was like the Pied Piper of Hamelin. Madoff played the pipe and everyone blindly followed. So what is the moral of the story? Don’t get fooled by the smoke and mirrors. Don’t buy in when they say. “Pay no attention to the man behind the curtain." As Ronald Regan once said: “Trust but verify.” And my favorite: “If it is too good to be true, it probably is.” |
Governance & Risk 
