Is the Madoff scandal the low point in U.S.'s decade of descent? - Investors crushed by Madoff's Wall Street fraud

Is the Madoff scandal the low point in U.S.'s decade of descent?
Posted Jan 10th 2009 12:00PM by Joseph Lazzaro

In the U.S.'s decade of descent, its near-decade of policy errors, investors could no-doubt cite their nomination for financial or economic low point.

Enron, the Bear Stearns hedge fund defaults, the mismanagement of Lehman Brothers and AIG (NYSE: AIG), the to-date secretiveness of the TARP money allocation, Citigroup's (NYSE: C) missteps that now expose the U.S. government to potentially more than $200 billion in liabilities, or the myriad bad decisions by mortgage borrowers and lenders that sent the housing market into recession would, undoubtedly, be mentioned as candidates for the biggest scandal.

A few 'candid and frank' discussions in CT

Still, during a year-end, holiday trip to relatives in Connecticut, I received "a full and complete report," as we say in the news/publishing business, concerning what many people -- at least what many of my relatives -- feel is the biggest scandal or mistake. Now, my extended family is by no means a scientific survey, but it's a pretty good cross-section of the American public, comprised of high-powered professionals and typical employees; those who've done very well financially, and those who haven't done as well, with all age groups represented.

And what was everyone really peeved about? The alleged Ponzi scheme and rip-off masterminded/perpetrated by Bernard Madoff.

The TARP money's allocation methodology -- particularly if the TARP doesn't meet all of the program's intended goals -- will have a larger impact on the U.S.'s recovery timetable and ultimate economic direction, but concerning the ability to get citizens really ticked off, the Madoff scandal is topping the charts.

I repeatedly heard comments like: "Why would someone managing $50 billion want to steal money or trick investors?" And: "Didn't he make enough money managing the money?"

The sentiment was similar in local shops I visited in Connecticut's small towns. One restaurant owner in Fairfield County with 40 employees was struggling with declining sales -- many Americans have substantially decreased their dining out during the recession -- and was trying to avoid laying-off employees. First he closed his restaurant on Mondays. Then he temporarily suspended the company's 401k matching program. Then he asked everyone -- owner, to managers, to employees -- to forgo raises for at least a year and to pay more for monthly health/dental insurance benefits. Everyone agreed. The restaurant has also cut expenses to the bone.

"Here I am doing everything possible to keep my staff employed and pay my own mortgage, and this guy Madoff wasn't happy making millions and had to cheat everybody," the restaurant owner said. "It shows you how screwed up the country's gotten."

The restaurant owner, an Independent voter, added that he's taking "a wait and see approach" regarding President-elect Barack Obama's plans to heal the U.S. economy, but added that "it's clear a change had to be made." He likes some of Obama's ideas but he's concerned that Obama might raise taxes on small businesses, such as his.

One man with millions, somehow still sees fit to cheat others, while another man struggles to make sure none of his modest-wage employees loses their sole source of income.

If there's a better snapshot than the above of the wrong path and the right path for the nation, I haven't seen it.

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Financial Editor Joseph Lazzaro is based in New York.