Bernie Madoff died this week.
Madoff was the architect behind the biggest Wall Street fraud in history. The former chairman of the Nasdaq stock market index, Madoff positioned himself as a self-made financial genius. He claimed to know how to avoid market fluctuations and deliver steady, handsome returns.
Famous clients like movie director Steven Spielberg, actor Kevin Bacon, and Hall of Fame pitcher Sandy Koufax believed him. So much so they handed him upwards of $17 billion over the years! The account statements he produced showed their investments growing to over $60 billion.
Madoff attributed these remarkable returns to his secret methods. He led clients to believe they were immune to the financial upheavals that were bedeviling other investors. Happy clients urged their friends to get in on the action. More people lined up. More money poured into Madoff’s company.
It was all a lie.
There were no investments. The money had not grown. In fact, Madoff used his victims’ money to live a lavish lifestyle. He bought million-dollar penthouses in New York and vacation properties in Florida.
Money flowing in from all those new “investors” covered the rare distribution requests made by his clients. Why take your money out of an investment plan that is growing so steadily?
Enter the financial crisis of 2008. Suddenly numerous Madoff clients were asking for money to cover other financial losses they were incurring.
The financial illusion fell apart quickly. Madoff was arrested and charged with eleven felony counts. In 2009 he was given the maximum sentence available – 150 years in prison.
Beside the evil intent and sheer bravado required by Madoff, there was one other element necessary to make Madoff’s scam successful.
Trust.
Bernie Madoff got his investors to trust him. With everything.
In surveying the carnage of Madoff’s evil scheme, it’s easy to conclude, “Maybe I shouldn’t trust ANY financial advisor or institution.”
Don’t think that way. That’s a falsehood as diabolical as Madoff’s lies.
Economies cannot function without trust. Civilizations cannot exist without trust.
Trust is not merely desirable. It is indispensable. We can’t live without it.
Think of the man who trusts no one. He only eats what he grows or hunts. He lives by himself. He doesn’t allow anyone to help him with anything. Such a man is certain to be poor, lonely, and weary most of his short life.
The story of humanity’s economic progress is the story of systems set up to encourage and foster trust in one another. We all grow in wealth as we rely on one another to do what each does best and then trade those results with others.
Author Stephen Covey put it this way, “Trust is the glue of life. It’s the foundational principle that holds all relationships.”
Okay, that’s a lofty thought. But when there are wolves on Wall Street—people like Bernie Madoff—how do you know whom to trust? Especially with your hard-earned money. Good question!
I think Ronald Regan had the best advice. (He was referring to nuclear agreements, but his words surely apply in all areas of life.) “Trust. But verify.”
In other words, don’t be afraid to ask your financial advisor tough questions. Do your homework. Ask for references. Bernie’s victims wish they had vetted him more carefully before handing over their assets.
Verify, but don’t give up on trust. You need it in your life. Financially, and otherwise.
If you’re struggling with financial questions and concerns, I’d love to send you my new e-book titled “How to Put Financial Worries in Your Rear View Mirror.” It’s free to anyone who emails me at bmoore@argentadvisors.com.
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