TO A REMARKABLE MAN....

Nelson Mandela

Detecting the Scam

 

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Common Sense:
the subway test (part 1)

Here’s the question: Can you be a victim of a scam if you knew or should have known about the lie the scammers sold you? Can you pass the Subway Test?

Here’s the test:

RolexSomeone approaches you in a subway and offers you a Rolex. It looks like a Rolex, but it doesn’t feel like one. It is as light as a feather—quite unlike the Rolex watches that are sold for thousands of dollars in the stores. For you, you are told, the price is $50. Although neither of you actually mouth the words, you each know its fake.

Here’s the question: If you buy it, are you the victim of a scam? And can you later really claim outrage and surprise about what occurred?

The answer to both questions is “no”—you simply bought a fake Ken LayRolex. End of story…

In researching some of the larger more outrageous recent scams, it is almost impossible to believe that some of our finest and brightest didn’t recognize the lies. Enron’s Ken Lay and Jeff Skilling, for example, tried to make the case that they had no idea what was happening on their watch. They claimed they had no knowledge of the very schemes they hatched with Andrew Fastow, their CFO. They blamed anyone they could think of from their lawyers, accountants, Andrew Fastow and their other colleagues, on the one hand, to the financial media, on the other. These former darlings of Wall Street put forward a novel “I-am-an-idiot” defense in their criminal trials. Fortunately, sanity prevailed. Their juries didn’t buy it. …

In the Bernie Madoff saga, if any student enrolled in any business school in any part of the world was to claim to his professor that he could offer investors a consistent rate of return year in and year out for decades in good times and bad, he would be hooted out of class and would fail the course. MadoffRemarkably, this is precisely what Madoff claimed he could accomplish and did accomplish year in and year out for decades. He was the guy in the subway peddling the fake Rolex. And some of our very finest and brightest bought what he was selling. They claimed they had no idea it was fake. They claimed that they too were victims of his scam. Puleeez… All that happened was they bought a fake Rolex, knowing it was fake. They failed the Rolex test…

In late 2008, I bookmarked an article on Citigroup and the financial meltdown by Thomas Friedman. As I thought about the Rolex test, I thought about his article, which is well worth reading. In discussing the financial meltdown in general and Citigroup in particular, he described how our finest, brightest and best-paid bankers were either “over-rated dopes who had no idea what they were selling, or greedy cynics who did know and turned a blind eye.” Sounds awfully like the guy in the subway who bought that Rolex…

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