People’s greed & media’s profit thereof

Dear reader,

Money corrupts. Money makes people blind. Money makes people do things they usually would never do. Sadly money can also ruin peoples’ lives (and media’s credibility).

Over the course of two decades Bernad Madoff ran the biggest Ponzi scheme the world has ever seen. He managed to make $65bn disappear. What I find interesting and truly astonishing is not that he managed to do it, but investors’ reaction and the medias coverage of it. The astronomical amount which Madoff swindled deserves all the media attention it can get. In my opinion the media has done a good job in doing it. The best coverage in terms of giving as full picture as possible is Bloomberg. The media should also scrutinise the people and feeder-funds which are connected to Madoff, something which takes more effort and knowledge about finance than just covering the story. Bloomberg published a long article about this matter a couple of weeks ago. I would highly recommend anyone interested to read it. However what I was disappointed by was the victimisation of investors in the general press. Let me explain.

Last week Madoff pleaded guilty to eleven charges in a Manhattan court. The charges span from securities fraud to money laundering. As The Economist commented about his guilty plea “[he is] all but certain to spend the rest of his life behind bars”(14^th March, 2009). I could not but agree. Anyone who steals such a staggering sum should get a life sentence. However, my biggest impression from that day was the media’s coverage. Instead of highlighting the flaws in the legal system, such as Madoff guilty plea gives him the right to refuse any co-operation with investigators, the media victimised the investors. Most airtime in the US was given to investors gathered outside the courthouse and their heartbreaking stories about how they now could not afford to pay the rent or their bills. It is obvious this kind of stories will be aired, since it looks good on television. However, when financial programmes also give airtime to it, I see a lost opportunity to educate people about the dangers of financial investments. I am not saying financial broadcasters should be used for educating the public, but I would argue their excessive airtime given to these poor investors damages the credibility of the programme and its content. A serious programme would explain the flaws in the legal system allowing Madoff to get as far as he did.

The subject of victimising investors is a touchy one. I absolutely agree Madoff should be behind bars and media should cover it. I do not agree with victimising rich people who by law are only allowed to invest in hedge funds if they meet certain wealth standards. People get easily carried away when they think they can make easy money. Their blindness allows people like Madoff to carry out their scams. However it is commonsense not to put all your eggs in one basket, as the expression goes. If I would have been a news broadcaster I would have found it more profitable (both in terms of sales and morally) to question the investors decision to invest all their money in one fund.

In all financial crisis investors and the public will be looking for scapegoats. Sadly this time it also showed the flaws of financial media coverage, predominately in the US.

Regards,

Fede

I would like to apologise again for not publishing the second part of the article on Hedge Funds future, however I will the coming week meet an ex-HF manager and feel it would be not appropriate to include his views. Hence it will be delayed one more week.