Economic Outlook: The democracy of fraud

NEW YORK, June 30 (UPI) -- The numbers in the world's largest Ponzi scheme appeared larger than life -- the kind of nightmare that dwarfs the imagination everywhere but New York.

Imagine $65 billion lost. That's hard to lose in many countries -- let alone cities. It is even, apparently, not quite feasible in New York City, for the fraud perpetrated by convicted trader Bernard Madoff included investors from around the globe, as a Ponzi scheme, by virtue of simple math, requires an ever-expanding number of victims in order to work. Eventually, like a chain letter, a Ponzi scheme has to stop, collapse or circle the globe.

The Madoff scheme did all of that with the oft-cited lesson that the digital age has created unprecedented opportunity for management or mismanagement, as the case may be.

Who was duped? It will likely take years of lawsuits to figure out which money managers who funneled money to Madoff turned a blind eye to the fraud and which were legitimately taken in by the delicious returns Madoff's sales staff promised investors.

Suspending judgment for the moment, it appears some European banks were duped. At least one billionaire claims he didn't see the fraud for what it was. And then, in New York, where Madoff received a 150-year prison sentence Monday, 11 victims who were neither banks or billionaires explained to Judge Denny Chin that the money they lost represented their life savings. In one case, investing with Madoff was a family's attempt to provide perpetual support for a mentally disabled relative, The New York Times reported.

The irony is that Madoff's staff often told investors it would be hard to get them in on the game. But the scheme that banked on the strange sales pitch that the Madoff club was an exclusive deal for high rollers took in thousands of ordinary folks.

In another city of big dreams, the U.S. Supreme Court ruled Monday that states can enforce consumer protection and fair-lending laws, which had previously been thwarted by the 1864 National Bank Act.

Previous interpretations of the law left national banks under the jurisdiction of federal regulators, which have "visitorial powers," which refers to a regulator's power to peruse bank records without a subpoena.

"States were precluded from going forward to enforce consumer-protection laws against banks," attorney John Cooney told The Washington Post. "Now they have the green light to move forward in consumer protection and a lot of other areas."

The ruling comes as lawmakers ponder sweeping regulatory changes, from granting the Federal Reserve more power over non-bank companies deemed "too big too fail" to creation of a federal Consumer Financial Protection Agency.

In world markets, the Nikkie average in Japan climbed Tuesday, gaining 1.79 percent. The Hang Seng in Hong Kong dropped 0.81 percent. The S&P/ASX in Australia rose 1.75 percent, while the Singapore Straits Times index rose 0.69 percent.

In midday trading in Europe, the FTSE 100 in London fell 0.30 percent, while the DAX 30 in Frankfurt lost 0.18 percent. The CAC 40 in Paris fell 0.43 percent, while the broader DJStoxx 600 dropped 0.15 percent.