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Is Madoff’s Sentence a Deterrent for Future Swindlers?

Bernard Madoff; via Chris Hondros/Getty Images

Question: I wonder whether the Madoff sentence is a sufficient deterrent for future potential criminals. If he is rumored to have stolen approximately $60 billion, then $60billion/150 years comes out to about $400 million per year. That figure is well above most annual incomes.

How much of a sentence do you (or your panel of experts) think he should have been given?

Paul Solman: Great question. I polled a few of my favorite economist/interviewees and here’s what they sent:

Catherine Mann — senior fellow at the Peterson Institute for International Economics since 1997 and professor of economics at Brandeis University:

Given the hubris of these guys (and they are all guys), their lack of ethics and sense of invulnerability, no threat or punishment will deter the next one.

Boston University finance professor, author of “Worry-Free Investing,” and frequent Making Sen$e collaborator Zvi Bodie wrote simply:

I think he should be required to spend the rest of his life performing menial services for the old Jews he screwed.

The longest response came from Terry Burnham, now a money manager who taught me micro-economics at Harvard’s Kennedy School. Among other accomplishments, he’s the author of Mean Markets and Lizard Brains:

Who responds to the Nigerian bank scams? Presumably people do fall for these emails, or they would stop.

The Madoff story seems to be more about the investors than about Madoff. I have spoken with half a dozen hedge fund-of-fund managers. Their due diligence lasted, on average 30 minutes, before they decided not to invest. They tell me that the signs were obvious that something was wrong.

I heard a story, but I don’t remember where, about gold coin scams. The story is that the scammers used the court records to find people who had previously sued gold coin scammers. You might think scammers would be afraid of these people because they had prosecuted. The claims is that people who fell for one of these scams were likely to fall again.

What is the most money you have ever lost on a scam? For me it is $11, and $1 of that was a real mistake. I “loaned” $10 to my neighbor in Ann Arbor (we shared a house, different entrances). He didn’t pay me back. He then hit me up again, and being young and weak, I gave him a second loan for $1. The first $10 are fine; I like the idea of trusting. I first loaned Brian Hare $400 within minutes of meeting him. He paid me back and introduced me to Barbara. [Terry’s wife.] It is the additional $1 that still keeps me up at night.

And then for those who have never seen the email scam to which Burnham is referring, he included one:

From: Mrs Victoria Bissou [mrsvbissou@freesurf.fr]
Subject: I and my son Levi needs your honest hand in our project
Date: Wed, 01 Jun 2005 01:13:27 +0200
From Mrs Victoria Bissou
Cotonou. Rep.of Benin, West Africa .

Dear friend,

I am a widow to the late principal accountant of Sierra Leon central bank who was assassinated due to political hostility in my country. For the sake of our lives, we fled to the neighbouring republic of Benin where we are seeking refuge until my son was evacuated to Europe recently where he is also seeking asylum.

We decided to search for an external assistance because we are having problems recovering a large deposit made by our late father overseas since the company maintained that instructions left by our late husband the original depositor states that the funds be “RELEASED TO MY FOREIGN REPRESENTATIVE ONLY”, believing he would appoint someone by himself to represent him for the claim but eventually he died earlier thereby making it impossible for us to go any further regarding this claim.

Most importantly, your ability to put the said funds into circulation wisely for our joint interest and relocating us is a major considerable factor regarding our request as our knowledge on financial matters is not enough to handle an amount of money above (us$10,000,000.00) ten million alone. On your personal advise, We are also considering the below options as areas relative to our interest to put the said funds working.

1) hospitality industry

2) farming and acquisition of farmlands

In view of this, if you are touched to work with us in sincerity, by standing as my late husband,s foreign representative to receive the said deposit on our behalf, we shall embrace you as our new found parent/family and will compensate you accordingly.

As you indicate interest, please be fast to contact my son Levi on this email address (bissoulevi@walla.com ) to enable him give you further information relative to the presence/position of funds and the steps we shall take to finalize on the project.

Do not hesitate to include your personal telephone/fax numbers as this will facilitate communication between you and my son. Thanking you in advance for your kind and urgent response, more so for keeping our proposal to your self.



Two more short responses, the first from Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C.; author of a weekly column for the Guardian Unlimited (UK) — and a blog, Beat the Press, also linked to your right:

Let’s see, a kid who steals a car worth $5,000 might get 1-2 years. Madoff stole 5 million times as much, so I suppose 5 million to 10 million years should be the right answer; that is, unless we give quantity discounts.

Finally, along similar lines, MIT finance professor and brain researcher Andrew Lo, author of A non-Random Walk Down Wall St.:

Although we don’t like to equate money with lives, this is an unavoidable trade-off that policymakers have to face every day. According to the EPA in July 2008, the “value of a statistical life” is $6.9MM in today’s dollars. A $60B loss is therefore equivalent to 8,696 statistical lives lost, which exceeds the combined number of lives lost in Iraq by U.S. and coalition forces (4,631 as of last month) and the 9/11 World Trade Center attack (2,974). Given that several investors actually committed suicide because of Madoff’s scam, which was certainly pre-meditated, I would think a life sentence without the possibility of parole would be more fitting.

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