Dec 18, 2008 11:07 am US/Eastern
Expert Wonders How Many Madoffs Are On Wall Street
NEW YORK (CBS/AP) ―
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Bernard L Madoff walks down Lexington Ave to his apartment on Dec.17, 2008, in New York City.
Don Emmert/AFP/Getty Images
Is Bernard Madoff just the tip of an embezzlement-laden iceberg?
In all likelihood, the alleged scammer of some $50 billion is only the first of his ilk to come to light, says Richard Parker, an economist and professor at Harvard's Kennedy School of Government.
"I think these are like cockroaches or termites," he suggested to co-anchor Harry Smith on The Early Show Thursday. "There are always more that you don't see. ... There's always, in every economy, somebody who's embezzling.
"When times are prosperous and the markets are rising, nobody really notices that they're being embezzled if the embezzler is doing a great job. And the total net psychic wealth of the country rises, because both the embezzler is richer and the embezzlee doesn't know he's lost money.
"But now, in times like ours, the exact opposite happens, and people scrutinize their resources and discover they've been embezzled.
"We're gonna see more after Mr. Madoff. I assure you."
Parker explained that, "From the 1930s up through the 1970s, there was serious due diligence. But for the last 10 or 15 years, there's been exploitation of SEC (Securities and Exchange Commission) rules to create these so-called hedge funds, which are meant to be for very wealthy people and aren't scrutinized with the same level of detail as public mutual funds and the like, or public stocks by the SEC. So, the room for fraud is enormous.
"Also, these hedge funds have been reporting 30, 40, sometimes 50 percent return, and the attraction of that kind of money is magnetic. And so people rush to put millions of dollars into them and don't often ask what it is exactly that the hedge fund is doing to make the money."
Parker added, " I think that this will come trickling out fairly quickly next year, as we see more of these hedge funds report out not being able to meet redemptions. I mean, I don't think that any of us thinks the recession is over. I think that the stock market probably hasn't touched bottom. It's not that far away from it, but it's not at bottom. And more money is gonna be lost."
(© 2009 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)
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