Like and Trust

Non-violent crooks are caught because they often have to cover up their deeds by spinning ever-more elaborate lies. Performance must be maintained on an upward trajectory. The story is the same whether the topic is school testing, news reporting, or investment returns.

Individuals or organizations who never come back to the pack are vanishingly rare. There are only a few possible explanations for long-term advantage: resources unavailable to anyone else (the Bulls had Michael Jordan, the Saudis have oceans of oil), barriers to competition [patents, government licenses and other prop-ups (or is it props-up?)], and cheating.

Speaking of coming back to the pack, Rupert Murdoch's takeover of the Wall Street Journal resulted in a tripling of my individual subscriber rate. I had held a multi-year subscription and had gotten used to paying an annual price, with professional discounts, of around $100. After receiving the renewal offer of $325 at the end of last year, I declined. Although I am philosophically closer to the WSJ than the Times or the Chronicle, I didn't think twice about rejecting this extravagant price hike. It's a free country, and, unless we're talking about the Patient Protection and Affordable Care Act, I don't have to buy anything.

After months of don't-you-miss-us and don't-you-need-us notices, a promotional offer of $144 for one year came in the mail.

I sent in a check the next day. Why the old-fashioned medium of payment? I don't want the Journal to renew my subscription automatically by charging my credit card at a much higher rate. "Like" and "trust" are not the same thing.

The Right and Painful Thing

It’s a widely held belief that the people who were bilked by Bernard Madoff’s Ponzi scheme lost everything. Thanks to the widow of an early Madoff investor, a sizeable chunk of the lost $20 billion will be returned to the victims.

The estate of Jeffry Picower, a major investor in Bernard Madoff's Ponzi scheme, has agreed to repay $7.2 billion to victims of the fraud in a settlement with the trustee overseeing the investment firm's bankruptcy and federal prosecutors in Manhattan, according to people familiar with the situation.

With such a large sum at stake, Mrs. Barbara Picower could have stalled this case for a long time. Given the fungibility of money and the length of their association with Bernard Madoff, an attempt to trace what part of the Picower estate was the fruit of the poisoned tree would have taken years. However, she quickly agreed to restitution.

"The trustee as a result of today's settlement will be in a position to make a distribution of approximately 50% of the estimated allowed claims in the liquidation proceeding," said David Sheehan, Mr. Picard's counsel. "Mrs. Picower is to be commended for coming forward and returning every cent she received from [Bernard L. Madoff Investment Securities] to the trustee and the U.S. attorney."

The 2009 Forbes 400 list pulls a number out of the air--$1 billion—as the estimate of the late Jeffry Picower’s wealth. It was obviously well below the actual number. Nevertheless, $7.2 billion had to represent the bulk of the Picower estate.

It’s convenient to say that when we become rich we will do the right thing, but somehow many people never do. Wealthy people’s lifestyles, social standing, and identities become tied up with their net worth. Signing away 70-90% of that net worth likely was difficult for Mrs. Picower, but it renews our hope in humanity to witness someone rich and powerful doing the right and painful thing. © 2010 Stephen Yuen

S.O.S.

I like to think that age confers not only wisdom but morality--as the appointment with one’s maker nears, morality starts winning (e.g., the Picower settlement) in the conflict between God and Mammon. It’s logical to believe that old people care less about the world and think more about eternity. But that would be wrong.

Another of my cherished myths has been exploded, and not just by elderly Ponzi schemer Bernard Madoff.

A grim category of crime is on the rise: senior-on-senior financial fraud [bold added]. According to regulators and prosecutors, there has been a significant increase recently in the number of cases in which older investors have been taken advantage of by elderly scam artists.

Seniors are easy prey.

Elderly investors are natural targets in part because they may be more susceptible to fraud. A 2008 study by researchers at the Georgia Institute of Technology found that older adults are significantly worse than younger people at detecting whether someone who may have stolen money is telling the truth.

What's more, according to research by Harvard University economist David Laibson and his colleagues, the typical person's ability to make astute financial decisions peaks at about age 53, then wanes with each passing year; another study found that investing ability takes a steep drop after age 70.

Adding to elders’ vulnerability are the declining size and geographic dispersion of their families.

It’s in everyone’s interest (but the crooks’) to get not only their estates in order but also make arrangements such as powers of attorney and conservatorships to help wall off the thieves. But that involves money, time, planning, and perhaps, most difficult of all, frank communication between people who may not have been talking much.

It’s too easy to put this stuff off until the appointment day, when it’s too late. There may not be much stuff left. © 2010 Stephen Yuen