Risk is 'out' and will remain so

The previous blog focused on how so many supposedly smart people and famous names from among the professional investment community could have been taken for a ride by Bernie Madoff's scam. The inescapable conclusion was that they were guilty of either stupidity, or incompetence, probably mixed up with a good dash of either arrogance or laziness. These sterling qualities, rather than outright villainy and criminal intent, are likely to have been the cause in the great majority, if not all, the cases.

So what? Where does that leave the huge profession of money management, which has grown so massively over recent years - indeed, over the three or four decades since private wealth started to expand rapidly? Will the money managers be able to put the crash and the scam behind them and get back to what they like to think of as 'business as usual'?

Too good to be true, but not too bad to be true

I am pleased - no, make that proud - to say that I had never heard of Bernard Madoff until last weekend. Maybe I had come across his name when he was Chairman of the Nasdaq, or in the context of Nasdaq trading, the arena in which his company was one of the biggest players. But, in common with a surprising number of other people supposedly 'plugged-in' to the investment scene, I had never heard of him in the context of asset management.

That lacuna has now been compensated for, by reading hundreds of pages about 'the Madoff scandal' or 'affair'. Yet I still have no idea how he managed to do what he himself claims he did, let alone answers to the endless list of questions about this mess.

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Bye-Bye 'Buy-Buy'

For over a year now, since the financial crisis really took off, I have kept a crude, hand-written slogan over my desk which says 'An economy based on people buying things they don't need with money they don't have'. It is my way of summarizing what went wrong with the US economy (and, indeed, that of the entire Anglo-Saxon world) and why and how we got into this extraordinary mess. It is also a much-needed lifeline to simple ideas and clear thinking, in the face of reams of pseudo-sophisticated garbage that I receive in the guise of research and plough through on a daily basis.

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