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Madoff Matters: Social Mood


Traders feel the psychological impact of lack of integrity.


When the Madoff scandal broke, I offered that the ripples from this particular Ponzi would be pervasive. That has indeed proved true on a multitude of levels.

The structural implications are massive. I speak with a lot of money managers and most of them have fielded additional redemption requests since the story broke. I'm not talking bottom of the barrel here either--folks who are up nicely on the year are still suffering as "fund of funds" sell their winners to finance the sinners.

There's the psychological impact, a "pile on" effect if you will, after the integrity of the capital market construct was called into question. Remember back in August of 2007, we offered:

"While debt is front and center as the issue at hand, credit of a different breed-credibility-has emerged as the issue at hand for markets at large.

If and when investors begin to perceive that central banks are no longer larger than the markets-and this, in my opinion, is simply a matter of time-a crisis in confidence will ensue."

Social mood and risk appetite shape financial markets and this dynamic, while amorphous, continues to play out.

Finally, there's the toll on human capital, countless lives that have been forever altered as a function of the alleged dishonesty of one man. Emmy Award winning Minyanville Scribe Justin Rohrlich spoke of his personal exposure a few weeks back and there are countless other horror stories.

Today, another life was lost, albeit in a more absolute sense.

There are folks who feel that "people get what they deserve" and "it's their own fault" for putting all their eggs in one basket. That mindset misses the point entirely and is endemic, in my view, of the infectious societal acrimony making its way around the world.

This isn't a zero sum game--there isn't one winner for each loser. Much like a bounder being dropped in the middle of a pond, the waves of loss continue to manifest, gaining momentum with each passing day.

Indeed, for all the years we've warned of the risk of leverage, this is perhaps the most acute example of what happens to risk gone awry and the bottom line, for many, is still being defined.

There aren't any blanket solutions or magic pills to fix what ails us. I will again offer, however, that if you're not part of the solution, you're part of the problem.

Don't underestimate the impact of your personal choices, be them professional gestures, facial expressions or random acts of kindness.

Now, more than ever, is when we must stand up and be counted.

Now, more than ever, we need to be Minyans.


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