Is it cruel to say that anyone who was foolish enough to put all their money into one money manager’s hands deserves what they get?

So called “sophisticated” investors, including European banks like Banco Santander, poured billions of dollars into the hands of Bernard Madoff without conducting any serious due diligence, despite every sign that his record was “too good to be true”.

It is unfortunate that charitable and educational institutions have lost almost everything, but we have to ask, what in hell were they thinking by putting all their money in one place? Furthermore, why would any educational institution or charity be playing the markets? Shouldn’t they be limited to safer investments like CDs and Treasury bonds?

There is now discussion afoot considering whether the Securities and Exchange Commission should bail out investors in Mr. Madoff’s madness. We don’t think that’s a good idea.

Our reason is simple. If investors believe that bad investment strategies can be protected by government, they’re more likely to continue, rather than cease risky investments and the problem will grow as more Bernie Madoff’s take advantage of the opportunity.

The fact that Mr. Madoff was able to “schmooze” his way into handling billions of dollars owned by high net worth investors, including banks, a U.S. senator, many millionaires and even a few billionaires is appalling enough, but to reward those who’ve acted foolishly is nothing less than compounding that foolishness with stupidity.

Isn’t it a fact that the reason these people, and in some cases, their money managers invested with Mr. Madoff’s company simply a matter of greed? They were after bigger, better returns than more conservative, safer investments would provide. If investors want to play the game for higher rewards, they must be willing to take higher risks.

We regret that people lost their money, but anyone who risked everything with one investment firm, particularly one making unrealistic claims of success was taking no different a risk than someone who puts up all their money at the roulette wheel in a casino. They don’t deserve to be reimbursed.

The SEC is likely to attempt to unravel this mess by requiring that everyone who received a payout from Mr. Madoff’s firm return the funds. There’s precedent for that, however, there’s little precedent for an investment scam of this scope and nature. The concept for such returns of funds is to pool the money and then return invested money to everyone who invested on a pro-rata basis. In this way, everyone loses equally, and no one investor wins the losses of another. Call it ‘private equity for the masses’. This Marxian method may work in smaller cases, but we believe in this case it’s rather pointless.

Investors are only insured by the process of due diligence. The investor, not the SEC or any other body is responsible for an accurate assessment of where they put their money.

While we respect the ‘good ‘ol boy’ network system, anyone who puts all their money in the hands of one person who they heard about on the golf course, ski slopes or the country club should have their heads examined. Doctors would probably find nothing… literally.

This scam is like the icing on the cake, right now… but in fact, bear markets usually bring out many such scams and problems. We suspect there are many more as yet unreported. Though the markets have fundamentally absorbed this particular scam, the reason for that is more pressing information affecting the broader economy.

If the SEC does anything to help investors here, so be it, but those investors should really understand they cannot and should not be so ‘flip’ with their funds. Investing wisely, cautiously and without a perspective of greed is always the best possible way to make good money.

For the next thirty years, scams like this, bubbles already burst and those yet to explode will create a safer, more risk averse investing public. At least we hope so. Disappointingly, it is human nature to be greedy and stupid. This group of investors has proven that golden rule.

The golden rule they really should have known: "If it sounds too good to be true, it is!" So much for sophisticated investors, huh?