Just after he got married, Bernie Madoff started an investment management company with $200 – November 1959. By 1961, he was managing $16,140. By 1973, he was managing $1.1 million. His reputation was building. He launched a venture into the electronic business, which was executing a large amount of the daily volume of trades on the NYSE. People heard of his genius through word of mouth. It was a privilege to be able to invest with him. His $7 billion under management at 2000 grew to $50 billion in 2005. He promised his investors returns of 10%-15% and he continued to deliver. People trusted him to invest virtually ALL of their funds’ money.
Then it all came unraveled. Bernie admitted it was all a fraud. He hadn’t made in a trade in 13 years. He was a crook.
How did this happen?
Not too long ago, Lehman Brothers was worth $47 billion. Solid reputation. One of the US’s largest banks. Been around for over 150 years. Definitely not going anywhere. Recent college grads would love to work there.
In September 2008, Lehman filed for Chapter 11 Bankruptcy.
How does this happen?
Part of the explanation for all of this is the power of the “image” and perception. In our everyday lives we are always surrounded by images. Whether it is the constant bombardment by branding, logos, labels, marketing, media, press releases, etc. or the images which we develop in our head. Images are everywhere. Perception is everything.
People perceived Bernie Madoff to be an incredible investor. People invested all of their money with him. They trusted him with everything they had worked their whole lives for.
Was there that much of a difference about what Lehman was actually doing within its offices when it was worth $47 billion than when it was worth zero?
How can a biotechnology company that is trying to develop a cure for cancer be worth $1 billion one day and $200 million the next when nothing has fundamentally changed about what the Company has been doing?
The alleged craigslist killer’s fiancée perceived him to be an upstanding citizen, and STILL won’t admit she might have been wrong even in the face of mounting evidence (just to make it clear, I am not judging him guilty or not).
Why is a dollar bill worth less than a one-hundred dollar bill? It’s the same piece of paper. Why is gold worth anything? If no one else would buy it from me, I would rather have something more useful.
Why do we develop a full image in our head of a person we just met when we really barely know anything about them?
I took a class called Philosophy of Imagination in college, and I feel like you can relate a lot of the study to what’s going on in the world today. It’s a cool field and I am going to continue to blog about it. Just wanted to get the ball rolling.
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