It is amazing what intelligent people are willing to believe when paid enough money.

So many of the rich and the elite willingly invested with Madoff in spite of suspiciously good returns. “I don’t know how he does it, he just does,” was a common response to those who questioned his method. Certainly his stature as an ex Nasdaq chairman gave him a credibility, but should that have entitled him to a secret no one else in the investment world possessed?

To even a modest analyst or regulator his claim of an options strategy should have alerted their skepticism; there weren’t enough options in the market to fund such a strategy for the amount of money he had invested. But the sheer size of his fund gave him legitimacy. Many of the rich elites he managed felt entitled to the superior returns that are unavailable to the little guy left with mutual funds with high fees.

Yet the little guy expecting his house to appreciate year after year was just as foolish. ‘Get rich quick’ hucksters and the real estate industry knew that pure demographics would be putting pressure on housing. Retiring baby boomers would be downsizing and moving into smaller homes, with fewer younger parents to buy the old larger homes.

Markets regress to the mean. Housing, gasoline prices, China, scrap, tech stocks- nothing goes up for ever. Nor have I ever seen a market rise exponentially and then just level off.

I do not think it is just a coincidence that the bursting of the housing bubble and the outing of Madoff happened simultaneously. Government sponsored Fannie Mae and Madoff are one and the same; they pushed impossible returns using plain deceit that everyone was willing to believe as long as they profited from it.

But while Bernard Madoff will be drawn and quartered in the public square (justifiably in my opinion), no one from Fannie Mae will serve a day in jail.

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