The scale of the fraud, amounting to some $50 billion, committed by the former head of the Nasdaq market Bernard Madoff beggars belief. His so-called Ponzi scheme—first investors paid with money from subsequent investors without any real growth in investment returns—was madness indeed. The 10 per cent return on investments that he was offering was simply unachievable let alone unsustainable.
How did such a scandal come about? It appears that the Securities and Exchange Commission hadn’t examined his books since September 2006 when he first set up the investment scheme. There was simply no regulation. And investors trusted his reputation.
It has left me reflecting on the nature of trust, and who we should or should not trust. Should investors have been more wary of a rate of return that seemed too good to be true? Were investors themselves to some extent to blame, for being too trusting, indeed too dazzled by the high returns? In other words, plain greedy. Were they too gullible? Could they have been more questioning, more cautious? When something appears to be “too good to be true”, then we can be sure that is.
It is all too easy to believe that some individuals can do no wrong. After all, wasn’t Madoff the head of Nasdaq? He had already built a sound reputation, or so it seemed. We tend to idolize people. We put them on pedestals. In the old saying, we treat some people as gods and others as dogs. We can’t quite believe that trusted banks and financial investors have put millions of dollars into artificial pyramid or Ponzi schemes. We so trusted their judgement that when they are exposed as fraudsters we can’t quite believe their audacity, their crookedness—and our naivety.
Yet their hubris catches them out and we are left aghast. We realise that we have subconsciously, and without questioning, treated them in John Lennon’s youthful brag as “more famous than Jesus”.
The appalling and sad thing is that when those whom we have idolized turn out to have feet of clay then trust is also destroyed. We become exceedingly wary—and probably rightly so. For, human nature being what it is, nobody should be taken wholly for granted, or put on a pedestal. It was the same situation with the rogue trader Nick Leeson, who brought down Barings Bank in 1995 due to his ever more desperate bets on market movements without any supervision of how he was using the vast assets allocated to him by the bank. It was the biggest banking scandal of the 20th century. Have we learnt nothing since then?
Lord Skidelsky, writing for the Project Syndicate association of newspapers (19 November) in an article headlined ‘Morals and the Meltdown’, laments that in the current secular climate “the West’s worship of false gods is a proposition that cannot be discussed, much less acknowledged”. He fears that “theological language that might have decried the credit crunch as the ‘wages of sin’, a come-uppance for prodigious profligacy, has become unusable.”
So by all means let us build statues on pedestals to the great and good once they have departed this life and can withstand the judgement of history. It is indeed right to preserve their memories for all time—just as it has been right to tear down the statues of false and murderous gods such as Saddam Hussein.
But in the meantime let us be exceedingly wary. Let us have the regulation of proper scrutiny—and let no one be blinded by the false gods of easy money and naked greed.
Michael Smith is the author of Trust and Integrity in the Global Economy and a co-ordinator in Britain of Caux Initiatives for Business.