Put Away For a Lifetime

Michelle Singletary
Thursday, July 9, 2009; 10:21 AM

Bernard L. Madoff, the mastermind behind what may turn out to be this century's largest Ponzi scheme, was sentenced to 150 years in prison.

Madoff, 71, stole as much as $50 billion of investors' money over at least two decades. The scam could go down as one of the longest running financial frauds in history. It has also come to illustrate the Wall Street greed that has led us into a recession.

The Post notes in an editorial that Mr. Madoff's sentence comes too late for his victims, while Zach Goldfarb reports that numerous attempts by a whistleblower warning of Madoff's illegal dealings were ignored by higher ups at the Securities and Exchange Commission in Staffer at SEC Had Warned Of Madoff.

The question on the minds of many investors: Where were the federal regulators?

Not doing their jobs, that's for sure. President Obama is pushing for new financial regulatory reform to help prevent another Madoff scandal. His plan includes the creation of a Consumer Financial Protection Agency. Read more about this in the Post editorial Plain Vanilla: Congress must protect financial consumers without stifling innovation (June 30).

If you haven't been following the Madoff case, (and you should be) here are some articles and columns to help you catch up:

* Madoff Sentenced to 150 Years (June 30) by Tomoeh Murakami Tse

* How Madoff Became an Equal Opportunity Thief (May 3) by Michelle Singletary

* Madoff to Plead Guilty to Fraud (March 11) by Tse

* Madoff's Investors Face Dim Prospects in Court (Feb. 22) by Jane Bryant Quinn

* Ponzi's Original Swindle (Jan. 11), Singletary

Poor Little Rich Girl

Following Madoff's sentencing, Ruth Madoff, 68, released a statement in which she publicly talked about her husband's atrocious crime for the first time. Some aren't buying it though, including Media Notes columnist Howard Kurtz.

In Bernie's Wife Bails (June 30), Kurtz writes: "So here comes Mrs. Madoff, who's lived a mighty nice life on the ill-gotten gains, issuing a statement that 'the man who committed his horrible fraud is not the man whom I have known for all these years.' Translation: Don't blame me. Also, don't charge me."

Mrs. Madoff was forced to move out of the couple's $7 million Manhattan penthouse apartment and leave behind their possessions. She was also stripped of $80 million in assets.

But get this, she was allowed to keep $2.5 million. Ruth Madoff agreed to give up all of her possessions in return for a promise that federal prosecutors would not pursue $2.5 million not tied to the fraud.

How sorry is Ruth? Well, while she vacationed in Palm Beach with five girlfriends, her $7,500 Birkin bag in tow, her husband's 74-year-old sister was driving people to the airport and watering plants to make ends meet, reports The Daily Beast. How low can you be to scam your own family? In its profile of Mrs. Madoff, The New York Times reports she paid $1,200 a month for a gym membership.

Ruth Madoff has not been charged with any crime. Her husband has said he operated his fraud without the knowledge of his family.

Okay, a show of hands on who believes this guy could run this Ponzi scheme without any help?

So let me ask you this week's Color of Money Question: Do you think Ruth Madoff should have been allowed to keep $2.5 million? E-mail your thoughts to colorofmoney@washpost.com. Please put "Poor Little Rich Girl" in the subject line.

Leftover Q&A

How did a highly paid, well-educated economics journalist end up struggling to pay a nearly half a million dollar mortgage? Last month's Color of Money Book Club pick was "Busted" by New York Times reporter Edmund L. Andrews. In his book, Andrews explains how he ended up in a mortgage mess. Read my review of the book, Insight From Inside the Mortgage Crisis.

Last week, Andrews joined me online to talk about his book and the controversy surrounding it.

Andrews answers some of the leftover questions that we couldn't get to in the chat:

Q: In the chat Andrews wrote: "The only way our problems will be resolved is probably by giving up the house and renting a place that is much cheaper." So a chat participant asked: "Then why are you negotiating with the bank? Why not just move on with your life, in a lifestyle that fits your take-home income?"

Andrews: I'm looking at all the options. As noted above, it may be in my lender's self-interest to modify my mortgage so that we can afford to stay in the house. That might be a lot less expensive to the lender than either a foreclosure or a "short-sale" in which I sell the house for less than the amount needed to pay off the mortgage. I'm not optimistic about a loan-modification, but it's not impossible. (If I do get one, it would not be government subsidized. My lender has already determined that I don't qualify for President Obama's assistance plan.) But there are two other options: renting an apartment or a small house, for a lot less than my current mortgage; or selling our house to investors, and renting it back from them.

Q: Be honest -- wasn't buying a big house part of a new life with a new wife? And, although few people publicly say this, aren't big houses primarily a woman-thing, and if men made the real estate decisions, there never would have been an explosion of McMansions and the sub prime bust would never have happened?

Andrews: It may be that wives place more importance than husbands on the house, to the extent that women take greater responsibility for children and spend more time at home. But buying a home is almost always a joint decision, and men don't get off the hook just because they took their spouse's advice.

Q: Did you give an accurate account of your income and responsibilities, including child support, to the mortgage company? If so, how could they possibly give you a mortgage with monthly payments larger than your income? While I don't like it that you are making money off your stupidity, I'm glad you wrote this book. Hopefully, people will realize that if someone as sophisticated as you could blow it so badly, think how much more challenging this process is for low income, uneducated, often non-English speaking mortgage applicants.

Andrews: I gave a detailed and accurate account of my finances in the book. My mortgage payments weren't lower than my monthly income; they were about even with my NET monthly income after paying child support and alimony. I was able to do this by taking out a "no ratio" loan, in which I literally didn't have to disclose my income at all. The lender approved me almost entirely based on my credit rating and down payment. We were gambling that my new wife would be able to earn enough to cover our living expenses, which turned out not to be the case.

Q: Do you have any plans to use the proceeds of your book sales to pay off your debt?

Andrews: If the book proceeds are enough to make a dent in the mortgage, I will absolutely use them for that. I don't have much other debt anymore, and we would love to keep the house.

Q: What changes have you and your family made to ensure that your financial future will be a better and a more responsible one?

Andrews: We've made all kinds of changes. We haven't taken a vacation in three years. We have virtually no discretionary income. Even though we live in the suburbs and have children, we have only one car - a 10-year-old Toyota that was paid off years ago. We are now looking at moving to a rental apartment or a small rental house. Fortunately, my own three boys will all be in college this September. That leaves us with only one child in the house, and we don't need as much space. Looking further down the road, we are trying to figure out how to restart our retirement savings. But, we haven't gotten there yet.

Q: I must ask as a loan originator who has worked both sides of the house for a broker and lender, did your loan officer educate you about the process, the programs and the pros and cons? It saddens me when I hear all the blame being passed on to the mortgage broker or lender. There are always bad apples in any industry but it is your responsibility, as the consumer to educate yourself if your loan officer does not. I have been in the business for 12 years and have learned that people want what they want regardless of how much you try to educate them. I have lost many customers because they may have qualified but could not afford it and there is a difference. So I said all of that to say don't blame it on all of the brokers and lenders because there are still good ones out here.

Andrews: Believe it or not, I'm still friends with my original broker. He was pretty clear about how my mortgage worked. His view was simply that he wouldn't second-guess my decisions about risk. But I applaud your ethics and your sense of responsibility, and I think it should be required of all loan officers and brokers going forward. If my broker had said, "Ed, I can get you this mortgage, but I have to tell you I think it's too much for your circumstances," I might have cooled down and stayed away. Home-buying classes would be helpful, if anybody took them. To be honest, buying a house needn't be all that complicated. For decades, it wasn't. Do we really want to focus on educating people about the intricacies of option-ARMs and other mortgages that were solely created to get people to borrow more than they could afford? Wouldn't it be better just to restrict or prohibit those kinds of products?

Chat Next Week

I will host a live chat next Wed., July 15th at Noon ET. It's a day earlier than my usual schedule so please make a note of that. The discussion is a free for all. So bring your pressing personal finance questions.

Submit a question now or during the discussion.

See you then!

Charity Brown contributed to this e-letter.

You are welcome to e-mail comments and questions to singletarym@washpost.com. Please include your name and hometown; your comments may be used in a future column or newsletter unless otherwise requested.

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