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Madoff Matters: Social Mood

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Traders feel the psychological impact of lack of integrity.

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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.

R.P.

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No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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