Should We Trust a Liar?

A followup on my most recent post:

Without any direct knowledge, last Friday I questioned whether the Wilpon family knew -- or "should have known", as Madoff bankruptcy trustee Irving Picard has asserted -- that Madoff's investment scheme was too good to be true. Picard is claiming that, since they were sophisticated investors, they should have known, and therefore should be required to give back up to $1 billion of the profits they earned over the years with Mr. Madoff.

Is it fair, I asked, to assume that because you "should have known" -- without any actual evidence that you did know -- that a fraud was being perpetrated, you should be denied protection offered to those, less sophisticated investors, who were also defrauded?

In yesterday's New York Times, Diana B. Henriques reported on a series of interviews she has conducted with Bernie Madoff in prison (and which will serve as the basis of an upcoming book).

In the article, Madoff insists that the Wilpons, like his own family members, "knew nothing."

On the other hand, he said, various (unnamed) banks and hedge funds that did business with the Madoff investment business "had to know... But the attitude was sort of, 'If you're doing something wrong, we don't want to know.'"

Given role of the banks and hedge funds in the 2009 financial meltdown, many of us may find that quite easy to believe.

But ... just how far can we trust what Bernie Madoff says now? Even if you believe, as I do, that regulators were asleep at the switch, having been given several warnings that not everything at Madoff's firm was on the up-and-up, you have to acknowledge that Madoff was a masterful manipulator of people and the truth. Why should we believe him now?