Marketplace Scratch Pad

Greed and blindness

Scott Jagow Mar 3, 2009

There’s an ugly, human thread that runs through all of the collapses and fraud on Wall Street. Two items I read this morning point it out clearly. The first is a excerpt from William Cohan’s forthcoming book, House of Cards — A Tale of Hubris and Wretched Excess on Wall Street. It goes inside the collapse of Bear Stearns.

In this Fortune article, Cohan says:

Years from now, when academics search for causes of the stock market crash of 2008, they will focus on the pivotal role of mortgage-backed securities…. What scholars should not miss is the role that the human element – call it greed or ignorance – played in this tragedy.

Namely, the greed and ignorance of Bear Stearns traders Ralph Cioffi and Matthew Tannin, who lost about $1.6 billion while allegedly misleading investors.

Example number two comes from Vanity Fair. It’s a in-depth piece about the Noel family, who ran FGG, the Fairfield Greenwich Group. It was a feeder fund for Bernie Madoff. FGG had half its capital tied up with Madoff. From the article:

Sources close to F.G.G. have said that the Noels will argue in court that, if the S.E.C. didn’t spot Madoff’s fraud, why should they have? But, unlike F.G.G., the S.E.C. was not taking investors’ money and charging 1 percent in fees and 20 percent of profits for looking after it.

Yes, thank you. It’s called responsibility. It’s called accountability. People making easy money never seem to question it. And they inevitably get other people to drink their cool-aid.
Hindsight is 20/20, but easy money must rob people of any shred of foresight they might’ve had that led them to their wealth.

Both these stories are compelling reading, but they’re also nothing new. $650,00 Ferraris and $13 million town homes. You’ve heard this tale before. Enron. Worldcom.

Cioffi and Tannin are awaiting trial. The Noels are getting sued. They all might wind up poor, but I’m sure they’ll be seeing things a bit more clearly. Unfortunately, as is always the case in these situations, there are many, many people who are suffering as a result of their greed and blindness.

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