In this Saturday's New York Times, writer Joe Nocera (Pulitzer prize finalist) writes about standing in line on Thursday, March 12 to see Bernie Madoff plead guilty... speaking with victims of Madoff's chicanery. In Nocera's unscientific survey of victims, he found that many of them want "justice" - in the form of government assistance (e.g. tax breaks) or legal recourse against the SEC for not catching Bernie in the act. Nocera admits that he is not very sympathetic.
I feel terrible for Madoff's victims but I do not feel that they should receive any special breaks from the legal system or the government to compensate them for their losses.
In fact, in some respects I feel that this very expectation is one of the roots of the economic meltdown.
The United States (and most of the rest of the world save perhaps China and India) is in trouble today as the result of a negligence of responsibility. Too many of us made stupid decisions (buying too much house, borrowing too much money, overusing credit cards) thinking that some event or situation would make everything work out. In the housing world, for example, many just assumed that "inevitable" price increases would provide the opportunity to sell to a higher bidder, or refinance whenever one needed to pay debt coming due. In short, we abdicated the most basic responsibility of thinking for ourselves:
How can prices of anything always increase?
Why buy a house that will cost me more than I can comfortably afford?
Should not I learn a little bit about the terms of this mortgage?
I am sure Madoff was a very smooth sales guy. He understood the human psyche and suckered people in with his "exclusivity" illusion. But that does not forgive those who:
Violated the rule of diversification.
Invested in a product they did not understand.
Or worse yet, had a sense that something fishy was going on but as long as they were making great returns, figured "so what?" and kept sending Madoff money.
No matter how much government regulation springs up in the next few years - and there will undoubtedly be a lot - ultimately we have to look to ourselves for protection from the Madoff's of the world. Yes, government agencies like the SEC should keep bad guys out of business. But the truth is that bad guys will always overwhelm the government.
Ultimately, our only protection is our own sense of judgment and self-control.