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Thursday, September 15, 2011

The Psychologically Permissible

"There's a sucker born every minute" is a phrase often credited to P. T. Barnum (1810–1891), an American showman. It is generally taken to mean that there will always be many gullible people in the world.  (Wikipedia

Bernard Lawrence "Bernie" Madoff (pronounced /ˈmeɪdɒf/;[3] born April 29, 1938) is a former American stockbroker, businessman, investor, investment advisor, money manager, and former non-executive chairman of the NASDAQ stock market, and the admitted operator of what has been described as the largest Ponzi scheme in history….

Concerns about Madoff's business surfaced as early as 1999, when financial analyst Harry Markopolos informed the U.S. Securities and Exchange Commission (SEC) that he believed it was legally and mathematically impossible to achieve the gains Madoff claimed to deliver. According to Markopolos, he knew within five minutes that Madoff's numbers didn't add up, and it took four hours of failed attempts to replicate them to conclude Madoff was a fraud.[57] He was ignored by the Boston SEC in 2000 and 2001, as well as by Meaghan Cheung at the New York SEC in 2005 and 2007 when he presented further evidence. He has since published a book, No One Would Listen, about the frustrating efforts he and his team made over a ten-year period to alert the government, the industry, and the press about the Madoff fraud.

Although Madoff's wealth management business ultimately grew into a multi-billion-dollar operation, none of the major derivatives firms traded with him because they didn't think his numbers were real. None of the major Wall Street firms invested with him either, and several high-ranking executives at those firms suspected he wasn't legitimate.[57]

Others also contended it was inconceivable that the growing volume of Madoff accounts could be competently and legitimately serviced by his documented accounting/auditing firm, a three-person firm with only one active accountant.       (Wikipedia)

The willingness to believe the improbable is a striking aspect of human nature.  Especially is this true when we are willing to romanticize the capacities of an individual.  We have the ability to turn someone into an idol and dutifully worship them.  Politics frequently witnesses this type of deification.  We vote for one believing that they will turn heaven and earth and realize all our even transcendental expectations within a few years.  We can do this with movie stars as well, greatly expanding their acting roles into silver screen mastery of all of life.  Decision makers in government are themselves often willing to believe that an outside stranger, a little-known entrepreneur will be able to perform miracles in growth and development.  In this case, it is the magic, the charisma, the iridescent chutzpah flowing from a confident developer that will certainly achieve where no one else has or could be successful.  This faith is inevitably eroded by the iconoclastic action of time. That which can be “pulled off” when an eagerness to believe is present (together with tightly controlled theatrical conditions) becomes dissipated upon the larger less controlled canvas of life.  On the downside of great expectations we often feel like suckers—taken in not only by others, but by ourselves as well.  The capacity to dream unrealistic dreams every now and then will present a winner—the product of a very desperate long shot.  But on the other hand, realistic dreams if psychologically permissible are generally the most rewarding.

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