Quote of the Week

I somehow managed to let yesterday slip by without posting the Quote of the Week. It's probably because I thought it was Wednesday all day (today's Thursday, right?), so it never dawned on me that it was time for Quote of the Week. So be it.

Without further excuses, here it is. It's from Bernie Madoff's latest jailhouse interview, as published in the New York Times.

This week's QUOTE OF THE WEEK

"[The banks] had to know. But the attitude was sort of, 'If you’re doing something wrong, we don’t want to know.'"
                    - Bernie Madoff, from prison, on his fraudulent Ponzi scheme

It's difficult to know exactly what to make of this line from Madoff. Is it simply a broken and desperate man trying vainly to blame others for his own shortcomings and crimes? Or is there more to his claims of complicity on the part of the large banks and hedge funds whom he claimed as clients?

On the surface, I think there has to be some truth to his statement. As the Times notes, there were significant discrepancies between Madoff's regulatory filings and other information that he provided to prospective investors, discrepancies that should have been revealed during the normal due diligence process. So either the banks were negligent in their research, or they were indeed complicit in the crimes--either way they must shoulder some blame, whether for a crime of omission or a crime of commission.

In that regard, I view the banks (and every Madoff investor) much the same way that I view over-leveraged home-buyers during the housing bubble. Both sides knew--or should have known--that the home in question was overvalued and that the buyer was overextended, but neither cared, and both thought that they could get out for a profit before the "fraud" was revealed. But it's always easier for us to blame the perpetrator--one bad man--rather than to admit that there is shared blame.

Admitting shared blame would require us to ask some hard questions about human nature and capitalism, and whether fraud is inevitable in all systems. It's much easier and more comfortable to blame these situations on isolated bad actors, and to banish them forever while we pretend to be innocent bystanders. I'm not certain we're doing ourselves any favors with that approach.

[New York Times]