The Wealthy Beg

In a further sign of the deterioration of society, the wealthy (or formerly wealthy) believe they are entitled to be bailed out for their losses. The victims of the Madoff and Stanford scams are appealing to Congress for a bailout. Bloomberg reports:

Together, the groups hope to persuade Congress to add a requirement to the regulatory overhaul bill, now under Senate consideration, that brokerage firms pay about $4 billion in additional fees to the Securities Investor Protection Corp. fund. SIPC protects U.S. investors’ accounts against fraud or bankruptcy. The victims also want Congress to require the fund to compensate them up to $500,000 each in losses.

We all should have sympathy for the victims of these two Ponzi schemes. After all, their lives have been adversely affected, in some instances irreparably. However, to believe that the rest of the country has an obligation to make them whole is a bit outrageous.

The lobbying initiative “gives new meaning to the word chutzpah,” said James Cox, a professor at Duke University School of Law. “This is just a tax increase. It’s levied on banks but customers end up paying.”

Their effort is natural. After all, in a society that bails out banks that created the economic crisis, why would others not believe they are entitled to the same treatment?  When “victimology” becomes the code, all deserve to be recompensed for anything that is bad, or even unsatisfactory. No one should lose money, even when it is their fault.

The claimants seek more than to be made whole. Apparently they believe they should be compensated for the fictitious profits that were reported to them:

Stephen Harbeck, president of SIPC, said his fund has enough money to cover all legally permissible claims up to the $500,000 maximum. SIPC has agreed to pay more than $650 million to other Madoff claimants.

Harbeck declined to comment on the victims’ lobbying. “Speaking only for myself, I cannot see where it would be good policy to change the law to pay fictional, contrived investment profits in a Ponzi scheme,” Harbeck said.

What has become of society when such claims can be entertained? Have we socialized all losses? No, only those losses for the rich or politically connected.

The madness of this game is obvious. Joe Sixpack, struggles with increased expenses and taxes. He tries to feed his family and save some money along the way. Yet he is increasingly being asked to divert his earnings to bail out others for their unwise decisions.

Sometimes bad things happen to good people. That is just a fact of life. When that happens, we tend to want to help out. But the way the government plays this game is different from how private charity would play it. Good people, in the eyes of the government, are defined as rich people or large corporations. When bad things happen to them, we must make them whole.

Joe and Jill Sixpack are not rich enough to be considered “good people.” When something bad happens to them, they must fend for themselves. One wonders how long this scam can continue. How long will the Joes and Jills of this country tolerate this abuse?

This post originally appeared on American Thinker.

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1 Comment

  1. Mr. Perelin,

    Thank you for allowing replies to your blog. The issues here are being somewhat distorted by your presentation of what you believe are the facts here. First, nobody is asking to be whole or beyond being made whole as you reported. There is a maximum limit, just like FDIC has a maximum limit as to what a person can possibly expect to be gotten back. Secondly, you must familiarize yourself with the SIPA law of 1970 that created SIPC before you are unduly influenced by the rantings of Stephen Harbeck, the President of SIPC.

    In its 40 year history, and based upon the law, if a broker/dealer goes bankrupt, it is SIPC’s responsibility to first try to recover the shares of the investor and return it to them. If not all of the shares can be recovered (note: regardless of whether or not they were ever purchased), than it is SIPC’s responsibility to go out to the open market and purchase those shares. Nothing in the SIPC statute addresses what it cost those investors in the first place.

    Let’s take a simple example. An investor bought 100 shares of IBM for $50. So, he paid $5,000. The broker goes bankrupt, and the shares cannot be recovered. SIPC comes in and buys 100 shares of IBM. If the share price is $25, then SIPC spends $2,500. If the share price is currently $100, then SIPC spends $10,000. There is no mention about how much the investor originally paid. It doesn’t matter, and they don’t care. SIPC “insures” what the balance was at the time of the default, not what the investor paid. So, if the investor had a losing position on the stock, they don’t get back their original cost, they get back the market value of the stock at the time SIPC buys it. There is no profiting on a bankruptcy.

    When FDIC comes in when a bank folds, how much do the depositors get back (up to the maximum)? They get back their account statement on the day of default. That’s more than they originally invested. Right? Especially if they never took out the interest income. What if the bank had a Ponzi scheme going and all the interest earned was phony? How much would FDIC then pay? It would still be the account balance. Same with how SIPC was set up.

    You should also be aware that while you are knocking the “well to do,” there are thousands of “Joe and Jill Sixpack” Madoff investors who were left destitute, who had worked hard all their lives and thought they were investing with a company that the SEC gave a clean bill of health to numerous times. They thought that the Chairman of the NASDAQ exhange was an honest person.

    Please don’t throw around the word “Chutzpah” when the victims are trying to get the government to enforce on SIPC the laws that have always existed. Please be aware that the securities industry never complained when they sucked in millions of investors by promising them all SIPC protection up to $500,000 per account, when these same companies knew very well that all they paid PER COMPANY for 19 years was a mere $150. That’s NOT $150 per account, but one payment of $150 per company to supposedly protect all of their customers. You do the math. How can that possibly protect more than a few people? Only in a perfect world where there are no claims. Yet, people, not knowing any better felt protected, that they could leave the securities in street name.

    The ultimate irony is that if there was no SIPC, there would never have been a “Madoff.” Madoff needed SIPC to pull off his scam.

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