I read this column in the New York Times today and it brought to life a couple of very concrete lessons that I’ve learned over the years. These are lessons that apply to both victims of Bernie Madoff and victims of the mortgage mess.
I’m not talking about people who got in trouble because of job losses, or other financial misfortunes. I’m talking about people who people who didn’t pay attention to what type of loan they were getting, or took out an option arm because all they were concerned about was the payment or lied on their loan application, or speculated in investment properties without calculating the financial aspects of the transaction.
What are those lessons?
- If it sounds too good to be true, it probably is. If most investors are earning 8 to 10% and Bernie Madoff is paying 46%, something should smell bad. If the local bank is offering 5.25% and that Vanderwell guy over at Straight Talk is offering 5.25% and the mortgage guy who your friend’s nephew’s brother plays poker with on Friday nights says he can get you 4.75%, something smells bad.
- Do your homework. Don’t rely on the advice of only one financial person, but double check what they are telling you. Know what the market is doing. Check out rates at Zillow’s Mortgage Marketplace to make sure the guy you’re working with is “in the market.” Talk to some people who have worked with the “guy” you’re working with.
Do I feel bad for the people who lost their life savings investing with Bernie Madoff? Yes I do. Do I feel bad for people who lost their home and their life savings because they relied on the services and advice of an unscrupulous mortgage lender? Yes I do.
Are there lessons to be learned from both? Yes there are.
Talking Business – Investors Were Victims of Madoff, and of Their Own Folly – NYTimes.com
"It is a real lesson that people cannot abdicate personal responsibility when it comes to their personal finances."
And that's the point. People did abdicate responsibility - and now, rather than face that fact, many of them are blaming the government for not, in effect, saving them from themselves. Indeed, what you discover when you talk to victims is that they harbor an anger toward the S.E.C. that is as deep or deeper than the anger they feel toward Mr. Madoff.
