It's a rare opportunity that one has in a lifetime to personally experience the teachings of a master. Some people lived through the Gandhi era. Others lived through the Dalai Llama era. Luke lived through the Yoda era.

We my friends have been fortunate enough to live in a wondrous time. A time of invention, innovation and technological advancements that has inspired an evolution of the human species never before seen. And we have been chosen to live in the time of one of the greatest masters of them all. A teacher among teachers. A Jedi knight of the first order.

The master educator Bernie Madoff. Oh yes my eager little beavers, Bernie Madoff is a teacher. His lesson: Moral Hazard.

Here's Master Madoff's message in a nutshell: Moral hazard is the prospect that a party insulated from risk (consumers) may behave differently from the way it would behave if it were fully exposed to the risk. Moral hazard arises because an individual does not bear the full consequences of its actions, and therefore has a tendency to act less carefully than it otherwise would.

People who understand moral hazard, such as Ron Paul, Peter Schiff and other conscientious, educated people, have been preaching this message for years. Unfortunately, it would seem that Dr. Paul and Mr. Schiff just simply never finished their Jedi training as master Madoff did. He brought us the lesson of lessons in a way that everyone can understand and will never forget.

One student, Alexandra Penney from Palm Beach, Florida, appeared on CNN today to talk about what she's learned. She is spreading master Madoff's teachings daily on her blog: since the SEC had audited Madoff on many occasion's and found no reason to suspect any sort of criminal activity  in fact they gave him their seal of approval — she thought her investments were safe. There was obviously no reason for her to do her own due diligence before investing, so she didn't. In fact she put ALL her money in master Madoff's care. No one said education was cheap, but that lesson is something no one can ever take away from Alex. And in these troubling economic times, that's a lot more than some have.

Alex was attracted to master Madoff's dojo by the up to 46% return on her money and given the frontal lobotomy that Alex underwent at birth she truly thought such a sustained return was possible in the market. Once again, my frontal lobe keeps me from living life to the "foolest." Not the first time and I am sure it won't be the last.

One disgruntled former student, Boston money manager Harry Markopolos, appeared on 20/20 four years ago commenting on the simple investigation he had undertaken regarding master Madoff's activities and the facts unequivocally indicated fraud: Madoff didn't make buys or sells, he was making consistently above average returns for his clients, etc.. . He implied that the SEC should have caught those simple, basic aspects of trading in securities. He even had the audacity to suggest that they didn't because either the SEC was an over-bloated, inefficient bureaucracy and/or so incompetent they couldn't do the simplest things and therefore a waste of taxpayer's money and/or — and this is just mean-spirited and obviously a product of Mr. Markopolos' resentment — the SEC was bought off by a billionaire. Oh right. Please, like that can happen. What would Mr. Markopolos suggest? We get the SEC out of the securities markets so there's no moral hazard and people will take responsibility for doing the necessary due diligence themselves before investing? Hah! Then what would the master's like master Madoff do? Freak.

March 14, 2009

The Best of Don Cooper