Madoff: The Other Verdict

Few trials in memory have triggered the unanimous public – and judicial – revulsion as the process that is sending Bernard Madoff to prison for 150 years. So universally loathed is this mass swindler that no friend, business associate, recipient of his charity or even relative came to court or wrote but one note to the judge attesting to Madoff’s “character” or good will, asking for just a drop of clemency. No psychiatrist was recruited to explain that Madoff’s decades of criminality were, somehow, sparked by uncontrollable compulsive behavior. In the end, Madoff stood alone to receive the maximum penalty allowed by our laws.

That is a verdict very important to our legal system and criminal deterrence. To the public, however, there is a second, more important, verdict. That verdict, on display by those Madoff victims who testified against him, filled the courtroom and gathered outside, sentences all of us to the consequences of our behavior. For a conservative, this is the extremely valuable (and ancient) lesson that we must draw from the second verdict: It is our individual responsibility to try to protect ourselves from society’s predators and misfortunes. As we learn increasing details of the Madoff fraud, it becomes painfully clearer that many victims – particularly those who have lost and suffered the most– did not protect themselves sufficiently.

Ignoring prudent action. Of course, we all have enormous sympathy for the 63-year-old California woman who lost all of her savings, as did her mother, her children and her cousins; for the 50-year-old New Jersey man who lost all of the proceeds from the sale of his business and whose parents lost everything; for the 91-year-old Connecticut woman who is forced to move in with her daughter in cramped spaces; for all those scrambling to find work (even at minimum wage) for the first time in decades. We have sympathy too for the victims demonstrating outside the courthouse, waving placards denouncing Federal agencies for not catching and stopping Madoff. These victims all have suffered and will suffer greatly.

But our sympathy for these victims should not blind us to the lesson of the second verdict. As I wrote on April 23 in “Madoff, Merkin & Conservatives,” what plunged the most-damaged victims into deep trouble was not lack of regulation, but their innocence and naiveté (and ignorance) – and repeated failure to take the most basic prudent financial action to protect themselves. They placed almost all of their assets in one fund or with one advisor. Yet, there were plenty of flapping yellow flags warning investors to tread warily around Madoff. A number of funds, banks (UBS and Goldman Sachs among them) and individuals initially tempted to trust their assets to Madoff, turned heel and fled after taking just a brief look at his operation. Any due diligence even marginally diligent saved investors from Madoff.

But even if performing such due diligence is too daunting, it would have been enough for individual investors to spread their risk by not placing such a large portion of assets with Madoff. The technical term for this is “diversification” – and long has been urged on investors by every article, every commentator, every analyst. And there is nothing new or sophisticated about this. It’s based on the eons’ old quaint folk wisdom of not putting all your eggs in one basket. How clever. How shrewd.

We bear the price. A number of Madoff’s victims, in fact, had only one or two percent of their assets with him. Though they’ve taken a hit, they haven’t been brought financially to their knees. They understood the second verdict of the Madoff case before the trial. Now, for the rest of us, with the vast evidence depicting how investors were swindled, this second verdict reminds and warns that if we do not act financially prudent, we bear the price. As conservatives we say that – ultimately – only we can save ourselves from the predators at prowl in the world.

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