Opinion: Madoff Implosion Is No 'Tragedy'

Maybe I was raised differently from the super rich on Wall Street or in Palm Beach, but in my world stealing is not a "tragedy" -- it's a crime.

I keep reading that many people, mostly insiders from enclaves of extreme wealth and privilege, are calling Bernard Madoff's implosion a "tragedy." This actually sickens me because it exposes just how serious the crisis of morality is among America's elites.

( Photo gallery: Reported losers in Madoff scandal)

It is not a "tragedy" to me that so many people with so much money and privilege were suckered by someone like Madoff. I think it is just a combination of laziness, stupidity and greed. That is not tragic to me. It is pathetic.

Madoff was making 1% per month, year after year with no losses and nobody else on Wall Street or anywhere could explain his returns. Even Madoff didn't explain it.

Plenty of people openly told the SEC and the media that he had to be either running a Ponzi scheme or doing something else illegally. Nevertheless, so many of these "sophisticated" investors piled their money into his fund. Many of them invested a huge percentage of their personal net worth, charitable trust, inheritance or future bequests to their heirs. What were they thinking?

Many were just following their friends. Many were lazy. Many were stupid. Many were greedy. None of them stopped to think that Madoff's returns were literally impossible unless he was doing something illegal.

Personally, I have no sympathy for Madoff's investors or their heirs or dependents or anyone who believes that they are entitled to get something for nothing in life. That is a philosophy of losers and apparently also of many of America's-so called elites.

This is very sad and, in my opinion, symbolizes exactly what is wrong with this country and why we're in so much trouble right now. America has a crisis of morality created by the undeserved and abused privilege at the top of our society that has trickled down to the middle and lower classes who also want to "get theirs" without earning it.

The same perverse mentality that causes these Madoff investors to expect a free lunch compels working people to believe that they don't need to work and save to buy things that they want. They can just go borrow the money, and if they can't pay it back, so what? They can just default and hope either their relatives or friends or the government will bail them out. Or they just declare bankruptcy.

Many American companies and their executives have the same thought process. Borrow as much as you can, make any stupid investment that comes across your desk -- especially if the people promoting it are your friends -- pay yourself and your friends as much as possible while the getting is good, and then go beg the government and investors and lenders for help when things go bad.

These financial and corporate leaders want to stick the honest taxpayers or investors or lenders or our foreign creditors with the bill for their greed, laziness and stupidity. If the government or others won't bail them out, they just go bankrupt, screw their creditors and destroy all the jobs and retirement savings of the company's hard-working employees.

This has become a way of life in America, and it is destroying our country. At its most basic level, there is no longer such a thing as honor in America.

In most other advanced societies, especially in Asia, the higher up you are in society, the more you are expected to behave within a certain set of rules. Those rules are mostly about honor and taking responsibility for your behavior and trying to set an example for people lower on the socioeconomic ladder.

Of course, there are frauds and crooks and other varieties of evil-doers in every society. But in most other advanced societies, these people are publicly despised and humiliated and punished swiftly and surely to such an extent that it serves as a strong deterrent to this kind of behavior.

In America, not only does our extremely lax and often nonexistent regulation make it ridiculously easy to get away with fraud and other white-collar crimes, but our justice system make it easy for criminals with money to delay and often escape justice entirely.

Even worse, there is actually a celebrity factor and some kind of respect in America for frauds who get away with it and "beat the system."

It is not unusual in Asia for elites who are exposed as frauds to commit suicide. Why? It is because of the dishonor. I'm not holding my breath for Bernie Madoff or Dick Fuld or Angelo Mozilo to do that. There's a great line from the movie Mississippi Burning, when Gene Hackman's character says: "Rattlesnakes don't commit suicide." I think that pretty much says it all about America's morally bankrupt elites.

How do we look to the rest of the world? If you were an Asian investor watching all of this, what would you think of investing in America after recent events? I think they are probably disgusted with us.

It was reported without much publicity in the past few weeks that the Chinese have announced they will not make any more investments in U.S. financial companies. I think this is just the beginning of what we have in store for us in the years to come. As foreign investors, especially in Asia, become increasingly repulsed by our ethics as well as our poor judgment, they will vote with their wallets and stop investing so much money here. They cannot completely get out because we are too big, but we need to keep their money flowing in every day just to keep the lights on in our economy.

Our whole country is teetering on the brink of an enormous amount of debt and a lack of sustainable income to service that debt. In the short run, the government will try to print as many dollars as possible and issue as many bonds as possible to fill the gap. However, in the long run we need to generate more income, save more domestically, or get foreigners to keep investing more money here.

So far we are not doing anything material to improve our chances of succeeding with any of these alternatives. We're not making the situation any better by reducing our interest rates to levels that are no longer attractive even to the Japanese.

How should a rational and independent investor try to deal with all of this uncertainty? For myself, I am holding a lot of cash, I have sold all of my bonds, I have started a position in an ETF that is short Treasuries -- UltraShort 20+ Year Treasury ProShares ( TBT), and I have used ETFs to purchase some silver -- iShares Silver Trust > ( SLV) and gold -- PowerShares DB Gold Double Long ETN > ( DGP).

I do not own any stocks, but I am not short any stocks either. The goal for conservative investors right now, in my opinion, is to position yourself for the significant likelihood that the U.S. economy, and to a lesser extent the entire world economy, faces a cataclysmic adjustment away from a growth model based on leverage and Ponzi finance.

This will either cause severe deflation, which is why you need a lot of cash, or it will cause severe inflation if the government successfully prints enough money, which is why you need some ways to hedge your cash by shorting Treasuries and owning gold and silver. I do not own foreign currencies because I think the gold and silver are better and also because I think ultimately all paper currencies will follow the dollar in order to stay competitive.

I don't have confidence in most other highly liquid and easily accessible investments for individuals until our financial and other leaders in America learn the meaning of honor and start taking this country down a path of working, saving, investing and producing rather than borrowing, spending, stealing and defaulting.

This change needs to come from the top. It is particularly important that the new Obama administration avoid scandal and get serious about financial regulation and enforcement of securities laws against frauds and crooks. This is essential to restore confidence of investors both domestically and overseas.

America has been given a lot of rope in the form of cheap and easy money for too long, and we have used it to hang ourselves financially and morally.

We need to start getting our house in order, get back to basics and change the direction of this country if we're going to sustain the great legacy that we've built during the past 300 years.

Christopher Grey is a Managing Partner of Third Wave Partners. He currently has positions in TBT, DGP, and SLV as mentioned in this article. This article should not be interpreted as personal investment advice or a recommendation to buy or sell any security. Interested readers may contact the writer by e-mailing cg@thirdwavepartners.net or visiting the company's website, www.thirdwavepartners.net .

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