"The real mystery in the Madoff story is not how naïve individual investors such as myself would think the investment safe, but how the risks and warning signs could have been ignored by so many financially knowledgeable people, ranging from the adviser who sold me and my sister (and himself) on the investment, to the highly compensated executives who ran the various feeder funds that kept the Madoff ship afloat."
A snippet from an interesting article (Fooled by Ponzi and Madoff) about gullibility, Ponzi schemes, and other forms of fraud by Stephen Greenspan (as he noted down, he is not related to ex-Fed Chairman Alan Greenspan), professor and writer on topics such as human gullibility, who fell victim to the recent Madoff scheme.
Written from the perspective of a victim, he breaks down why humans fall prey to these forms of dubious financial transactions. The writer explains that there are four primary factors involved in why people invest - situation, cognition, personality and emotion - and the historical big picture of international scams (other than Ponzi) that feed on human gullibility. Or perhaps we forget basic greed is all part of it.
I had two reactions to reading this article: when I opened my email this morning, I received a message from someone "G.O" who was willing to purchase a piece of jewelry that I posted on a seemingly respectable auction board, G.O. said he'd send the money through his bank, then demanded I send him my bank details (swift code etc). Alarm bells went off and I emailed back that there was no way I would send those details and I was listing him as a spammer. A second email later in the day from a trusted friend warned several of us of a sheep in wolf's clothing; I wrote back that I hadn't picked up any diabolical vibes from the person, but as I read Mr. Greenspan's article I realized that part of it was that I had fallen into the trap of at least two of the factors, specifically situation. We had been introduced by a trusted friend and respected community leader, and the setting was one where we wouldn't suspect the person of any nefarious doings in his past.