Who's afraid of thinking for themselves on investments?She then speaks with former consultant Campbell Harvey, who drops this gem about vetting superfraud Bernard Madoff "about six years [ago]":
The economic system is now plagued by a lack of independent or critical thinking, and the role this absence has played in the global financial crisis is becoming clearer by the day. The idea that professional investors apply rigorous independent analysis to everything they do has already taken a harsh beating this year. Some do, but many do not.
He said in the case of the Madoff fund, he looked at it very briefly and rejected it out of hand because the consistent returns on equity investments it touted “did not make any sense”. He said it was not credible because the risk of fluctuating returns which are common in equity investments (stocks are riskier than other types of capital-like bonds) had apparently completely disappeared.Resident not-so-hottie John Gapper, also at the FT, has a theory about why people kept shoveling money to Madoff, despite suspiciously steady returns on everything:
With hindsight, the whole affair seems deeply implausible. We know that nobody produces rock-steady returns of 15 per cent or more, year in and year out, unless he or she is either a genius or a crook.That is, everyone thought he was getting information illegally somehow and most people were cool with that.
No one thought that Mr Madoff was operating a Ponzi scheme but plenty of people thought he had an unfair advantage. He was a former Nasdaq chairman and one of Wall Street’s biggest marketmakers. Enough said.