Were U.S. banks really smart enough to avoid Madoff?

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The suspicious folks at Westlaw’s Legal Currents ask:

With the Madoff Securities $50 billion Ponzi scheme touching so many investors, we at Westlaw Business remain shocked. Not for the reason everyone else is, though – our shock derives from the seeming insulation of U.S. financial institutions and operating businesses from all this. Not a single U.S. bank or public company has (yet) disclosed any exposure to Madoff directly or to affiliated funds. Did prudence suddenly grip this group, the same group with self-destructive penchants for complex securitizations and credit default swaps?

The Westlaw crowd suspects that publicly traded U.S.-based Madoff victims may wait until right around Christmas or New Year’s to make disclosures about their losses, “hoping no one’s looking.” Either that, or they won’t disclose at all because the losses aren’t material and who wants the bad publicity.

I’m a little more sanguine. It’s not that U.S.-based financial institutions are so smart, just that Madoff probably avoided them on purpose. Getting entangled with banks and other securities firms here would have invited scrutiny both from regulators and from more questioning financial types than the jokers at Fairfield Greenwich.

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