Do we ever learn anything?

Spanish philosopher George Santayana was a bit more eloquent with his classic (if somewhat cliche) aphorism, “Those who cannot remember the past are condemned to repeat it.” However you put it, I’m wondering why we never seem to learn from our mistakes.

In the late 1990s, we watched as our tech and Internet stocks rose seemingly without limits or reason. We knew what was happening wasn’t right, but as long as we were making money, we didn’t care.

Not long after that, we looked on as Enron created bizarre new business models while encouraging its employees to sink all of their retirement savings into the company’s stock. And the stock’s price rose, and rose, and rose.

And life was good. Everyone was making loads of money. Who cared how they were making it?

Then the bubbles burst. Lives were ruined, fortunes lost, regulations enacted to make sure it didn’t happen again. And finally, we looked at the victims and said, “So sad, but they really should have known better.” And we were right.

And now, we’ve done it again.

The SEC is accusing investment advisor and former Nasdaq Chairman Bernard Madoff of running a multi-billion-dollar Ponzi scheme that bilked investors out of an estimated $50 billion. People were stunned when the news broke. How could a respected, admired Wall Street veteran possibly have pulled the wool over the eyes of so many seemingly intelligent investors for so long with no signs that anything was wrong?

Truth is, writes Jason Zweig, the signs were there from the very beginning.

In a recent “Intelligent Investor” column (highlighted nicely by Edith Orenstein in FEI’s Financial Reporting Blog), Zweig says the accounts managed by Madoff’s outfit gained about 1 percent per month “like clockwork, with nary a loss, for two decades.”

“Why,” asks Zweig, “did that freakishly smooth return not set off alarms among current and prospective investors? Of all people, sophisticated investors like Mr. Madoff’s clients should know that if something sounds too good to be true, then it’s not. But they believed it anyway. Why?”

For the same reason that dot-com investors and Enron employees believed: Because money talks, that’s why. Seemingly rational people will do incredibly irrational things when money is involved.

What bothers me is this: I can’t say I would have behaved any differently. Can you? And be honest. We all like to think we’d do the right thing, but when you’re getting investment advice from the former chairman of Nasdaq, you’re apt to believe you’re doing the right thing in the first place.

Plus, our judgment gets cloudy when the bottom line is growing so quickly. “Sure, it looks a little fishy,” we might say, “but look at all the money I’m making!”

So we’re right back where we started, hoping we’ll learn from our mistakes, apply the lessons of history and do things better the next time.

The hard part is identifying “the next time” before things go wrong.