mage67 (mage67) wrote,

When you hit bottom, sometimes we discover a whole new bottom

The Bernard Madoff $50 Billion Ponzi Scheme has been exposed.
Click Here for the news article

Bernard L. Madoff Investment Securities LLC's website now consists of a 2 paragraph home page and a pdf of the receivership order by a Federal District Court Judge (The highest level US federal court short of the US Supreme Court)

For those of you who don't know:
A Ponzi scheme pretends to be an investment. The money investors make actually comes from new investors and not from actual investments. The scheme can only last as long as new money is invested in it to pay off existing investors. Since there is only a finite amount of investment dollars in the world, the scheme has to fail eventually. The founder can only win by fleeing with a bunch of money before that happens. When the scheme fails, all the investors get little to nothing of their money back. It's blatantly illegal. Usually the schemer gets caught and all his victims never see most or any of the money they invested in it again.

The estimated $50 Billion invested is now estimated to be worth less than $300 million. The $300 million figure is probably overinflated. So even with federal bailout help, investors will probably see less than a penny for every dollar they invested.

This is the largest known Ponzi scheme ever. Bernard Madoff was smart and sophisticated enough to know he couldn't keep the scam going forever. Evidently this scheme went on for decades, so it had to include legitimate investing used as a cover for what was really going on. Perhaps it started because Madroff's investment philosophy was a failure and this was the only way he could think of to cover his losses. Like a bad gambler, he might have thought of using this scheme to cover losses until he could get legitimate investments make up for all his failures. Perhaps he hoped to be dead by the time it was all uncovered (He is 70 years old now and this line of work does not help longevity).

Regardless of the reason, it's clear Bernard Madoff was only thinking of himself. He wasn't even thinking of his employees and his family (many of whom worked for him and would have inherited the mess). He did give out huge bonuses to employees before everything crumbled, but that's like trying to put out a forest fire by pissing on it.

This scheme would have kept going possibly for years more, but the current financial crisis made people take out more money than anticipated and sooner. So this is an example of how one shaky house of cards collapsed another sooner than expected.

The question to worry about is, how many more schemes are out there waiting to collapse soon because they're being weakened by the current finanical crisis.
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