A Global Crisis of Confidence in US Financial Markets

There’s a comprehensive and fascinating article in the January 3 issue of The New York Times that should be must-reading for all public relations (PR) and investor relations (IR) consultants who serve financial services companies, including private equity firms and commercial and investment banks. “The End of the Financial World as We Know It,” by Michael Lewis and David Einhorn, begins with a provocative statement: “Americans enter the New Year in a strange new role: financial lunatics. “

As proof of their thesis, authors cite “the strange story of Harry Markopolos,” a former investment officer who tried, for nine long years, starting in 1999, to explain to the SEC that Bernie Madoff, the man who engineered the biggest global Ponzi scheme ever, couldn’t be anything other than a fraud. In response, the SEC undertook a slapdash investigation of Madoff and pronounced him free of fraud.

The Madoff scandal is just one example of a systemic problem … and it’s not just a matter of insufficient oversight of the financial services industry.

According to Clusterstock, many of Madoff’s investors were well aware that his returns were impossibly good, so he had to be cheating. However, they never considered the possibility of a Ponzi scheme. They thought that the scam involved insider trading … and that’s precisely why they chose to invest with Madoff!

In many cases, the Wall Street swindler’s investors willfully chose to become complicit in their own defrauding by ignoring the old adage that “if it sounds too good to be true, it probably is. “