Wednesday, March 18, 2009

The immutable pair – swindlers and suckers.

By Don Klein

P.T. Barnum, the legendary American circus impresario was reported to have said, "There is a sucker born every minute." Some historians dispute whether Barnum was the actual author of those words, but no matter who coined the phrase, it is Bernard Madoff who perfected the adage. To put it more succinctly -- $60 billion worth of suckers.

Now clearly everyone should have sympathy for those who lost their wealth and in some cases their life’s savings, but all of the victims should be welcomed into the Suckers Hall of Fame. Even I, a very minor player in the stock market with a piddling portfolio, knows that you do not put all you eggs in one basket.

Haven’t we all been taught from childhood the well-worn proverb: "If it sounds too good to be true, it probably isn’t."

When thinking of the Madoff scandal I can only conclude that there will always be swindlers like him because of one documented human factor. Greed. There are always those who hope to beat the odds or outsmart others by making a better deal than anyone else.

These are the people who are red meat for swindlers. Come up with a juicy idea that allegedly will make more money for you than you ever thought possible and you will have a steady supply of suckers beating a path to your door. They can be taken for all they are worth.

With homage to Barnum (or whoever talked about suckers being born every day), the sad thing about this is that after the balloon bursts these chumps look for someone else with deep pockets to extenuate their losses. They want the government to cover their foolishness because the Security and Exchange Commission didn’t do its job monitoring Madoff. That’s like suing the fire department for not saving your burning house.

Back in 1985 there was a swindle in Baltimore on a much lesser scale than Madoff’s. In that case the Old Court Saving and Loan Association, insured by a private company, offered much higher interest than other financial institutions. High rate seekers flocked to Old Court, dumped thousands of dollars in savings and were burned when the S&L president absconded with the money. The association failed and the depositors insisted on the state reimbursing them because the insurance firm, unable to cover the losses, operated under state law.

A congenial Gov. Harry Hughes, more concerned about reelection than wasting taxpayers money, complied after a time. The insult was that investors sought the advantage over careful taxpayers in seeking higher interest rates in Maryland yet when the bank failed insisted on the taxpayers bailing them out.

What happened to the risk factor in investments? Sounds familiar?

Is there any meaning anymore for personal responsibility? Have we created a society which happily reaps all the advantages of a free economy but with none of the responsibilities? Nothing forced Madoff investors to put their money with him except his phony salesmanship and their greed. That’s the risk of investing. Does everyone have a right to a bailout?

Swindlers make good fiction but bad reality. I remember the fun it was to watch the film "Dirty Rotten Scoundrels" to observe the three main characters – Michael Caine, Steve Martin and Glenne Headly – try to out smart each other in fraud following fraud. It was a classic gyp comedy that previously could have starred favorites like Spencer Tracy and Cary Grant. In fact years later it was made into a Broadway play.

Then there was "The Producers." The Mel Brooks play about swindlers who decided that it was profitable in selling well over 100 percent of the shares of the play that they expect to fail so the shyster producers would reap a fortune in massive over subscriptions when the play closed. People eager to have a piece of Broadway gladly invested in the nefarious plot, which backfires when the show, "Springtime for Hitler," becomes a hit.

"The Producers" with Zero Mostel, Gene Wilder and Dick Shawn, was a classic Broadway show which later became a film hit. The film won the Academy Awards for script writing. A few years ago it was revived on the stage and was the draw on Broadway during its long run.

People love swindles when it happens to others. I predict that just about every Madoff victim saw at least one or maybe both of these plays or films and laughed their sides off. But they are not laughing anymore. It is truly sad. There is nothing funny about swindles in real life. Losers want their money back, but must realize they will never see it again, except for a possible fraction that the government can offer from Madoff’s seized assets.

The best thing about the Madoff case so far is that he is now sitting in jail, not in his posh New York penthouse.

Next year though, or the year after or the year after that, another Madoff will emerge with a great line of hocus on how to make money by investing with him and the suckers will trample over each other to buy in. And soon after they will go through the same pain as Madoff’s investors because even if Barnum didn’t say it, there is a sucker born every minute.