Diligence missing in Madoff case
At some point, due diligence needs to enter into the discussion of financial institution failures in the United States. Thus far it has been noticeably lacking.
Another scandal has surfaced on Wall Street. Bernard Madoff, described in one press report as a "veteran Wall Street money manager," was arrested. The former chairman of the Nasdaq Stock Market also was termed "well respected."
That is not the case. Madoff allegedly duped investors in a $50 billion investment scheme, through which many of them lost enormous amounts of money. It was, again according to a press report, no more than a gigantic Ponzi scheme.
Among investors who lost money were major banks in Great Britain, France, Japan and Spain. In addition, institutional investors, including some charitable organizations, were victimized.
"There were a lot of very sophisticated people who were duped," commented Harvey Pitt, a former chairman of the Securities and Exchange Commission.
That brings up the due diligence question. Small investors - those who don't have the time and/or expertise to manage their own money - are blameless, for the most part, when their investments go bad.
But what about the big banks and institutional investors - the "very sophisticated people" - mentioned by Pitt?
They bear some responsibility for not monitoring their investments prudently.
That needs to be kept in mind by government officials who are doling out hundreds of billions of dollars in "bailouts."
The big investors should not escape scot-free from their own mistakes.
