The Madoff Madness and the Banking Crisis: At one extreme, trustees must dodge sociopathic fraudsters; on the other, they must avoid the hubris of “the smartest guys in the room.”

Modern Portfolio Theory and the legal thinking it’s influenced address the problem by means of risk analysis and diversification. This approach has limits, as Investments & Pensions Europe reported recently: “Dutch pension funds have lost €166m to the Ponzi scheme run by Bernard Madoff, Wouter Bos, the Dutch finance minister has claimed.”

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Miller-McCune is a new magazine whose tagline is “Turning Research into Solutions.” On its website, it reports on a 30-year study of green attitudes among adolescents. The results are sobering.

“A research team led by Laura Wray-Lake of the Pennsylvania State University’s Department of Human Development and Family Studies examined data from the ‘Monitoring the Future‘ study, a sophisticated survey of the beliefs and behaviors of American secondary school students. The scholars mapped trends in a variety of environment-related areas, including conservation-conscious behaviors, feelings of responsibility for the environment and faith in technology.

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Few professors or pundits have worn the title of guru better than Peter Drucker. Here is an excerpt from his 1976 book, The Pension Fund Revolution, on the revolutionary General Motors Pension Plan of 1950:

“The union [the United Auto Workers] feared, with good reason as subsequent events have proven, that the pension fund would strengthen management and make the union members more dependent on it.

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Is it possible that traditional macroeconomics and ecological economics (or sustainability theory) are converging?

Two articles published Sunday morning, April 12, taken together, suggest to me that these fields share an emerging understanding of debt and its essential elements: collateral and leverage. Through these lenses, debt’s charge on the future is coming to be understood as never before.

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Given what we now know about the effects of finance economics models on the markets – that they create portfolios that mimic each other – Keynes’ observations in his General Theory on Americans and how they invest seems strangely prophetic:

“Even outside the field of finance, Americans are apt to be unduly interested in discovering what average opinion believes average opinion to be; and this national weakness finds its nemesis in the stock market. It is rare, one is told, for an American to invest, as many Englishmen still do, ‘for income’; and he will not readily purchase an investment except in the hope of capital appreciation. This is only another way of saying that, when he purchases an investment, the American is attaching his hopes, not so much to its prospective yield, as to a favourable change in the conventional basis of valuation, i.e., that he is … a speculator.”

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Why read the ever-growing pile of stories of tricksters and con men (and women) in our industry?

Schadenfreude – a delightful German word meaning pleasure from others’ misery, especially of those more rich, famous, etc. than you – is probably why readers devour these stories. But financial services professionals should be reading them for the same reasons that law students and business school students study cases: to develop their instincts.

Madoff madness has all but hidden the stories – very different from his – of other apparent predators brought to ground in last fall’s crash. Marc Dreier is one of those.

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The Social Investment Forum has posted a list of thoughtful answers to the “Top 10 Questions about SRI.” I especially like SIF’s responses to some skeptical questions about our industry, such as:

Is the performance of SRI funds competitive with mainstream funds and with their benchmarks?

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