Investment protection not government’s concern

Freedom New Mexico

Victims of Bernard Madoff’s $65 billion Ponzi scheme at least have the satisfaction of knowing the man who ruined their lives will die in prison. In June, he received a 150-year sentence at the age of 71.

You may remember U.S. District Judge Denny Chin sent a strong message to investment consultants about the cost of violating the trust of their clients.

It’s great that Chin wants leaders of the financial world to know how seriously our legal system views fraud. Meanwhile, two other messages should emerge from that scandal.

1. Investors should not trust government to protect them, and;

2. Investors should not put all their eggs in one basket.

After the sentencing, one victim said the satisfaction of knowing Madoff would rot in prison seemed to be wearing off quickly. He described it as a five-minute rush that faded once he realized Madoff’s prison term wouldn’t undo his own family’s financial ruination.

Several victims said their anger was turning toward the Securities and Exchange Commission and the Securities Investor Protection Corp. They seemed amazed that government didn’t protect them before their money was lost.

Expecting government financial regulators to protect investors from crooks makes little sense. It’s similar to expecting the Bureau of Alcohol, Tobacco and Firearms to protect convenience store clerks from armed robbers. Blaming the SEC is like blaming the Oklahoma City bomb squad for Timothy McVeigh’s fertilizer truck.

Government is in the business of selling the promise of protection. Those who expect too much from this promise risk getting hurt.

Fire departments provide government protection from fire. We need fire departments, and most firefighters are fully devoted to protecting us from fire. Unfortunately, by the time most people find themselves in need of a fire department’s help, damage is under way. At best, fire departments mitigate damage and teach people how to protect themselves from future fires.

Far and away the best protection against fire damage comes from the occupants of structures and the stewards of land, the people who are positioned to employ constant measures to protect themselves from fire.

Those who let children play with matches because the government provides fire protection, do so at great risk.

Protecting money from theft is much like protecting a structure from fire. The owner of the money provides the money’s only realistic defense. By the time government aid is in the mix, irreversible loss has typically occurred. People should never risk all their money, or even a high percentage of it, by leaving it in one place.

Investments are, by their very nature, risk. If government regulators could eliminate financial risk, wealthy Americans would be wise to stand on street corners handing over cash to anyone who comes along with an idea. In a society that was established to protect freedom and the pursuit of prosperity, even at the expense of safety and security, government has no means of magically transforming risk into something safe and secure.

Government can’t stop crimes before they occur, any more than it can race to the scene of a fire moments before it begins.