News recently broke about another financial scandal, this one involving Sir Allen Stanford. He is not a superstar like Bernard Madoff, he only "made-off" with 8 billion dollars. He too had all the trappings of respectability; philanthropic affiliations, governmental connections, even knighthood - the "Sir" was bestowed on him from a place not known for its knights of the round table, the island of Antigua. Although not as impressive as "Sir Elton John" or "Sir Anthony Hopkins" — who got their knighthood from Great Britain — it still allowed Stanford to put "Sir" on his website and business cards and nobody knew the difference anyway.
After Madoff, it was a matter of time before all kinds of crooks got exposed, many who had operated without scrutiny for years. These guys weren't as smart as Madoff — it takes a unique intelligence to put together a scheme of the size and global scale he did and sustain it over so many years. He set the standard that all financial schemes will be measured against. I'm sure the others were just as ambitious but like basketball, there is only one LeBron James at a time. Fraud has become a competitive sport.
Madoff gets front page headlines and magazine covers, others get small articles on page eight of the business section. As New York Times reported on February 26, "For two decades, Paul Greenwood and Stephen Walsh looked like Wall Street wizards. Their supposed investment prowess lured hundreds of millions of dollars from public pension funds and universities and earned the two lavish trappings of success." Same drill as Madoff and Stanford, yachts, private planes, club memberships, etc.
Federal agents busted these two this past Wednesday. According to the Times, their investment fund was a $667 million dollar fraud. To add insult to the injury of getting caught, their fraud was deemed "a small scale version of the $50 billion fraud that Bernard L. Madoff is suspected of." Small scale. Small time. Petty. Doesn't even hit a billion. Madoff is accused of "masterminding a global Ponzi scheme" - here's the kick to their groin - "Mr. Greenwood and Mr. Walsh simply stole their investors' money, the authorities said." You've got to steal on a major scale to get any respect - these guys simply "stole" their investors' money. I'm not sure of the distinction. There is apparently no evidence that Madoff ever purchased any securities - sure seems like stealing. Now you've got money - now you don't - the wizards made it disappear.
The question of whether anything could have been done to prevent this arises and who better to ask than Alan Greenspan, the man who presided during this period of fierce financial competition, illusory profit and greed on Wall Street. In the "House of Cards," a CNBC documentary, Greenspan was interviewed by David Faber who asked him that question. Although known as an economist, Greenspan showed his prowess as a psychologist, "The flaws in human nature are such that we cannot change them, it doesn't work."
We should be happy that Greenspan wasn't the head of The Center for Disease Control or The Department of Transportation. We have laws and regulations because we have "flaws in human nature" so we can reasonably coexist in society. Those "flaws" produced slavery, kept women from voting, pursued unjust wars, sold dangerous pharmaceuticals, made us dependent on foreign oil, sold billions of dollars of toxic debt, and well, you get the picture.
"There is no doubt that somewhere in the future we're going to have this conversation again. It will not be for quite a period of time. But it will occur..." said Greenspan, showing how optimistic he is about his own longevity, if not the economy.
Speaking of flawed human nature, I almost felt bad for these two financial "wizards"; quoting the Times, "Mr. Greenwood and Mr. Walsh never developed the sort of wide following that Mr. Madoff had enjoyed." I guess Bernard was just a more popular guy, until his popularity turned into notoriety.
Almost as footnote to the article, another financial manager, James Nicholson, may have cost his investors as much as $100 million since 2004. Mark Bloom, founder of The North Hills Fund, was arrested for stealing $5.2 million from his own investment company. They were not important enough to get their own article. The competition is too tough.