Let’s start by putting Bernie Madoff’s escapades into context.  The Big 3 auto giants created a tsunami of controversy when they originally came a-beggin’ for $25 billion in bailout money.  Bernie Madoff managed to screw people out of nearly $50 billion.  That’s enough to underwrite a pretty big fleet of Impalas, don’t you think?  

Mr. Nasdaq did it the old-fashioned way, too.  He wasn’t all that tricky.  He didn’t come up with something new or exciting in the field of scammery.  He kicked it old school with a strategy that was in use long before its current namesake came up with a postage scam scheme.  Bernie went straight Ponzi.

Take Peter’s money.  Pay Paul with it.  Then go find some other Apostle and shake him down for enough to cover the bills on Peter and Paul the next time around.  Ad infinitum.  It’s nothing new.

I’m sure that Bernie had to be extra good on the not getting caught front, but the core plan was the model of criminal simplicity.  He also had a big advantage over most of the hucksters out there–name value.  It was good enough to load the coffers with money from smart former Senators, Elie Wiesel and even Steven Spielberg.  Madoff’s “hedge fund” attracted big dough from the smart guys, so he must have been wrapping that Ponzi scheme up in some very pretty paper.

I’ve found a few lessons in the tale of Bernard Madoff.  

First, don’t trust a guy just because he’s been around and has name value.  That’s especially true when the name recognition is in a field that flat-out rewards greed.

Second, don’t assume that the smartest guys inthe room have any real idea of what they’re actually doing.  Bernie Madoff gathered up $50 billion from bright, wealthy people and highly-regarded companies.  Many of those folks had equally bright (if not smarter) aides and advisers on the payroll and they still wrote those checks to Madoff.

Third, Gordon Gecko was a goofball.  Greed is good?  Yeah, he had a point.  The profit motive is a big thing and the desire to accumulate wealth is a big part of why a market-based economy can work.  But it has a downside and we’re seeing it etched in the facial expressions of those who just found out that their charitable organizations have been robbed of almost every last dime.  Greed has an upside, but Bernie’s tale reminds us that it can blind otherwise reasonable people to the truth.

Now that we’ve seen big-timers on the receiving end of a scam and realize that getting taken for a ride is possible even for those smart enough to delete incoming Nigerian moneymaking emails, todays headlines are all about how the rest of us can avoid getting trapped in a Madoff-like rip-off.

Here are a few of the best pointers I’ve encountered:

Diversify.  This is a perennial nominee for most overused personal finance cliche , but it’s not a good idea to put all of your eggs in one basket.  Everyone knows that.  Sometimes, however, they forget and decide to hand over everythig to Bernie Madoff.  Resist the urge to go “all in” and spread your risks.

Beware of Smooth Sailing.  The market bobs and weaves.  Things go up and down.  There are very few long straight lines in the world of finance.  Bernie Madoff, however, showed investors/victims consistent rates of return year after year regardless of the larger economic context.  That should scare the bejeezus out of anyone who’s thinking of making an investment because it’s so outlandish.

Verify.  It won’t hurt you to have a third party expert review your statements and what’s ostensibly happening with your cash.  Pony up a few bucks to have a certified financial planner or someone else who can spot the red flags you might miss take a look at your investments.