Madoff *victims* seek bailout – *Updated*

*UPDATE*

A commenter took me to task for this post. She raised some valid points (to which I responded) and after some consideration, I must admit that some of the language I used disparaged the people who have been devastated by this despicable crook. That was not meant to be part of my argument and I can understand why they would take umbrage. I also did not mention, as I did in my response to her comment, that the SEC holds a great deal of responsibility in this matter – especially in the case of Madoff. They ignored numerous warnings that something was wrong with Madoff.

I stand by the rest of the post and my opinion about this situation.

Sure, why not? We bail out everyone else, why not the unfortunate fools who fell victim to Bernie Madoff’s Ponzi scheme.

Sadly the concept of “personal responsibility” has become an oxymoron in American society. Through government policy and ridiculous litigation, America has become a place where:

  • no one is responsible for their actions, no matter how foolish they are
  • the only responsible party is the one with the deepest pockets
  • shit never happens

So it’s no surprise that the folks who were ripped off by Bernie Madoff and R. Allen Stanford (another Ponzi schemer) are seeking a bailout. And who has the deepest pockets of all? That would be you, the taxpayer. (more here and here)

As the groups’ leaders walked the Capitol halls separately over the past several months, they learned how to find the Senate’s Dirksen Office Building and to call their proposal “revenue neutral,” meaning no cost to taxpayers.

They also gleaned another lesson: The broader the geographic base of support, the better the chance of legislative success. The result is a coalition of the Democratic-backed, East Coast, and mostly Jewish investors defrauded by Madoff, with the Republican-backed, largely Christian, Sunbelt residents victimized by Stanford. The disparate groups now find themselves bound by a common notion: They’ve been cheated, and they want the government to make them whole.

“We had been trying for a year, breaking our necks to get attention from Democratic members,” said Angela Shaw, 40, of Dallas, whose family lost $4.5 million in the Texas-based Stanford’s alleged fraud. “We realized that working together, maybe these things will be heard.”

Together, the groups hope to persuade Congress to add a requirement to the regulatory overhaul bill, now under Senate consideration, that brokerage firms pay about $4 billion in additional fees to the Securities Investor Protection Corp. fund. SIPC protects U.S. investors’ accounts against fraud or bankruptcy. The victims also want Congress to require the fund to compensate them up to $500,000 each in losses.

Yet how can this bailout be “revenue neutral?” If congress makes financial companies pay into a “victim fund,” do these people really believe that they’ll just eat the additional costs for the good of the order? They know better of course, the costs will be passed to on to the customer. Just take a look at your phone bill or electric bill sometime to see how additional government fees and service charges are handled. That’s how your $70 cable or phone bill ends up costing you $90.

The madness of this game is obvious. Joe Sixpack, struggles with increased expenses and taxes. He tries to feed his family and save some money along the way. Yet he is increasingly being asked to divert his earnings to bail out others for their unwise decisions.

Sometimes bad things happen to good people. That is just a fact of life. When that happens, we tend to want to help out. But the way the government plays this game is different from how private charity would play it. Good people, in the eyes of the government, are defined as rich people or large corporations. When bad things happen to them, we must make them whole.

I have some sympathy for the people who lost their life savings but as we all know, shit happens – sometimes bad shit happens to good people. Whose fault is that?

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2 Responses to “Madoff *victims* seek bailout – *Updated*”

  1. You talk about personal responsibility, but you do not mention anything about the responsibility for the SEC to oversee our financial institutes. That is their sole purpose-to maintain fair markets. They failed. They admit that they failed and David Kotz detailed their failures in his report.
    Do you feel that the SEC has taken responsibility for its failures?

    The SEC also has the responsibility to ensure that SIPC acts according to its statute. SIPC, who has paid investors of Ponzi schemes in the past, is now not paying investors of the Madoff Ponzi scheme. SIPC is not being responsible. They are failing not only Madoff customers, but ALL investors. There is no investor in America who can currently feel secure that their life savings are protected as promised.

    In addition, SIPC is failing its broker dealers. If the American investor feels they are not protected, there is a good chance that they won’t trust their broker/dealer and thus may not feel inclined to invest.

    Since SIPC is broker funded, you say that any increase in cost would be passed on to the customer. Are you aware that every broker/dealer who claimed their customers were protected by SIPC insurance only paid $150 per year for that claim? You say that the customer will pay for the increase in SIPC dues, but I wonder if they benefited from the measly dues that were paid for years prior to the Madoff arrest?

    You say “shit happens”-you have no idea what that means until you wake up one morning and find out that not only has your entire life savings been stolen, but that your government allowed it to happen and continues to perpetuate the pain. I hope you never experience this pain.

    • Thanks for the comment. You make valid points.
      The SEC does indeed hold a large measure of culpability here – they were essentially asleep at the switch. They had been alerted to Madoff numerous times over a period of years about this and they did nothing. Has the SEC taken responsibility? What kind of responsibility? Perhaps the SEC should go after the SIPC to make them pay up to the extent that they are required.

      The SIPC is a “quango,” not a government agency. The fact that it is “failing not only Madoff customers, but ALL investors” may be a concern of the government and/or the SEC, but not a reason to shift responsibility to customers of banks and other financial institutions. According to the article I linked to from Bloomberg:

      Together, the groups hope to persuade Congress to add a requirement to the regulatory overhaul bill, now under Senate consideration, that brokerage firms pay about $4 billion in additional fees to the Securities Investor Protection Corp. fund. SIPC protects U.S. investors’ accounts against fraud or bankruptcy. The victims also want Congress to require the fund to compensate them up to $500,000 each in losses.

      Is it your position that this additional federally mandated $4B will not be passed to customers?

      By their very nature investments carry a risk – some more than others. This risk is taken by the investor so a certain amount of due diligence should be involved when investing your life’s savings. A certain amount of investment diversity also helps in the event of unforeseen disasters. Investing even a substantial portion of one’s life savings with a single entity is ill advised.

      Shit does indeed happen and sometimes bad shit happens to good people. People get hit by lightning and lose everything to medical expenses. People become victims to any number of disasters, natural and man-made. While some can be compensated, others, for whatever reason, cannot. It’s not fair but then again, life is not and cannot ever be fair. Our society, through hideous government regulation and litigation is trying to deny this basic tenet of life. My overall point in this post was this – where does it end? Where do you draw the line? By the way, “shit happens” (not specifically this type, but bad nonetheless) has happened to me twice in my life so far and there’s no guarantee that it won’t happen again.

      Look – I don’t wish what happened to Madoff’s victims on anyone. I truly feel sorry for them and believe that they should be compensated in some way. In hindsight, I probably should have chosen some different language in the post. I hope you folks find some way to be compensated at least partially.

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