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By Li Hongmei (chinadaily.com.cn)
Updated: 2008-12-22 16:13

With the ex-Wall Street heavyweight Bernard Madoff under the arrest on Dec.11, more influential private investors and financial firms have been joining the growing list of those caught up in the alleged pyramid scam that already victimized even some of the world’s largest banks.

Madoff, in his 70s and accused of running a giant Ponzi scheme, where earlier investors are paid off with investments of newer clients, reportedly confessed to defrauding investors of US$ 50 billion. The elaborate swindle collapsed as the European clients asked for their money back due to the global financial crisis.

The newly revealed Wall Street scandal for the fourth tome put the American regulation in question following the previous crises: the 1998 collapse of U.S. hedge fund managers LTCM; the 2001 false-accounting scandal involving energy giant Enron; and the collapse in September of the Lehman Brothers bank.

Since evidence came to light, commentators have launched a barrage of sharp criticism to the U.S financial monitoring system. A day after Spain’s biggest bank Santander announced exposure of more than US$ 3 billion to Madoff Investment Securities in New York, the Spain press led the charge.

‘The supposed meticulous supervision by the SEC, the U.S. financial watchdog, has failed in the task of preventing massive fraud,’ said Spanish newspaper EI Pais. ‘It must be asked how it is possible that no one had detected anything abnormal about his activities,’ the newspaper La Vanguardia was quoted as saying in an editorial.   

So far the alleged scam has affected businesses and charities around the world, and topics spurred by it have captured headlines across the globe. Frankly speaking, you do not have to be a keen financial observer to discern the deception, as it is so crystal clear a fraud that anyone can spot and tell only by giving more than a passing thought. That being the case, no one can doubt Madoff’s shrewdness in fabricating the tale of accumulating wealth. He had made a close study of human nature and skillfully converted the investors’ fear of losing money into a shared panic, a dread of missing the chance to make a fortune.

Membership to Madoff Club had once become a symbol of wealth and success, and the regular and fat return gained by investing in Madoff Securities lured more profit hunters to push their way into the ‘elites club,’ as was much admired and regarded the magic way only to make their  investments snowball.

In actuality, deception of the kind has been run for years all across the world, and it will probably recur anytime anywhere in future. Unfortunately, many of those hit by the Madoff scandal were professional investors. Why so? It might be hard to give a satisfactory explanation but some investment consultants pointed to weaknesses in human nature.

‘I choose to call this the unacceptable face of human greed,’ wrote Howard Wheeldon, senior strategist with BGC Partners in London.

On the other hand, the downfall of the Madoff myth also made some din braying across China in previous days come to a grinding halt. Those, who had obstinately worshipped Wall Street, and intensely criticized the Chinese financial system and policies as too conservative, capital accounts not too open, and who complained about the poor selection of an extensive range of financial products, will have to reflect in face of the unfolding financial tsunami that, beyond tales of success, Wall Street could also breed crises.