Bernie Madoff... (1 Viewer)

[todd s]

Let me start this by saying that he is a scumbag and I hope he rots in prison. I keep hearing about people who lost ALL of their savings and charities loosing all of their funds. Why the heck would people put EVERYTHING into this guys fund? Even if he was legit. When the market tanked like it did they may have lost a major portion of it anyway. Yes, I know the simple answer is greed. But, my god...It's not a safe secure account like a treasury bond. They were taking a risk. So to put it all in one place seems like idiocy. On the news last night they had an elderly couple who were concerned and asked their accountant about taking some out. He said it would be foolish to do that. Then you need to demand it.
Again, I hope they squeeze every penny out of his wife and kids who I can guarantee knew about everything. He told his kids to turn him in so it would take the heat off them...Not coincidentaly his son's wife filed for divorce the day he turned his father in. Yet, a week or so later they were holiday shopping together and looked happy.

 

[Holadem]

What's "safe secure" has been refined in the last year. There are a lot of things that people thought rock solid that have proven not so. Hindsight is 20/20...

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H

 

[LewB]

The Man Who Figured Out Madoff's Scheme - CBS News
Someone figured it out, but his complaints fell on deaf ears.
Madoff stole from Sandy Koufax, prison is too good for him

 

[Michael Reuben]

First of all, I was wondering how long it would be before someone started a thread about Madoff. I'm surprised it took this long.

Now, to the point: You don't understand the nature of the business that Madoff pretended to run. It wasn't a "fund". It was an investment management firm: a specialized, boutique version of something like Smith Barney, Merrill Lynch or Sanford Bernstein.

Putting all your funds at Madoff Investment Securities wasn't the same thing as putting them all in a single investment, because Madoff's investment management strategies were supposed to involve the purchase of a wide variety of securities (which would automatically provide diversification) with various hedging techniques (which would theoretically provide protection against market shifts). The problem is that Madoff stole the funds instead of investing them.

Now, should people with a lot of money be splitting their funds up among different money managers? Probably, but that brings up its own set of problems. Each manager you add brings up additional problems of oversight. People would much prefer to find a manager in whom they have complete confidence and rely upon him. Madoff's singular talent was in creating an incomparable image of trust and reliability, which he bolstered by socializing and being close friends with many of his victims.

Holadem is right: Hindsight is 20-20. This guy went undetected for years by people who knew him well, and his reputation within the financial industry was so distinguished that, even when alarms were raised, they were ignored. If not for the financial meltdown of 2008, he probably wouldn't have been exposed during his lifetime.

 

[Jay H]

So, his Ponzi scheme fails when a lot of people start asking for money and his income starts to dwindle? Could he have foreseen this and acted accordingly? It sounded like he was way over his head in terms of capital and that he had billions of dollars such that when people stopped investing, he could not afford to pay off his so-called "investments" and it all came to light, but if he kept his income down and the market didn't crash and eveybody didn't start asking to withdraw, he could have weathered this...

Jay

 

[Holadem]

I think the collapse of a Ponzi scheme is a mathematical certainty. A bigger influx of $$$ (new investors) is required to satisfy the growing base of investors. At some point, it will be imposible to bring in enough money from new investors to pay the existing ones. At that point, the existing ones will start demanding their money back and the whole thing collapses.

According to NPR, the money people thought they had totalled $65B; the original investments totalled about $15B.

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H

 

[Michael Reuben]

This is accurate, as a general description of Ponzi schemes. But bear in mind that Madoff managed to keep his running for at least 13 years -- and that's a conservative figure, which I'm using because that's how far back the court-appointed trustee has said he could find no trades on behalf of clients. Madoff's guilty plea says the Ponzi scheme began even earlier.

Madoff was a genius at attracting new money. If he hadn't had a sudden rash of withdrawal requests in 2008 (app. $7 billion was the figure I saw reported), who knows how long he could have kept this going?

 

[Holadem]

If my understanding of the ponzi scheme is correct (this disclaimer applies to everything in this thread; the very little I know about finances is what I hear/read on the news and google around)

...then in a way, once he started down that path, the aptly named Madoff only really had two choices: expose the whole thing as a fraud early on (with relatively few casualities), or keep going till it inevitably collapsed under it's own weight (like the massive disaster it became).

Note that as Michael said, the latter is not what happened here: The financial crisis created a situation where people wanted their $$$ back from everywhere, including from Madoff. His scheme was exposed as a result of the crisis, not because it grew too big. Who knows how long he could have maintained it?

Short of a miracle (the equivalent of a person in a spiral of debt winning a huge lottery), nothing could have turned his enterprise into a legit one once the ponzi scheme started.

EDIT: Didn't see Michael's reply before I posted this. But yeah.

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H

 

[Michael Reuben]

All correct, but to answer Jay's original question:

Yes, under those circumstances it's possible that Madoff could have "weathered" this, in the sense of escaping detection. His clients' money would still be gone, because it was gone long ago, and he would still need to be finding new victims from whom to swindle new money with which to continue paying out "returns" to the existing victims. That is the nature of a Ponzi scheme.

So while there's a lot of misery being felt right now, it's good Madoff didn't "weather" the crisis. The people who are suffering today had already been hurt, but they just didn't know it. Now, no more people will be hurt.

 

[Holadem]

For all we know there is an even bigger one out there.

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H

 

[Jay H]

yes, maybe if Madoff diversified into Ponzi scheme and drug trafficking, he could be using the drug trafficking money to fund the Ponzi scheme til the turnaround of the stock market!

Hey, there's some Mexican drug cartel on the Forbes billionaire list.

Maybe Madoff should of contacted that guy for a loan.

Jay

 

[Holadem]

I "liked" this article from last fall: How I Got Screwed by Bernie Madoff - TIME

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H

 

[LewB]

What REALLY scares me about this is the apparent fecklessness of the S.E.C. Madoff hadn't executed a trade for his investors in over a decade, wouldn't even a cursory investigation have surfaced that red flag ?

 

[Michael Elliott]

Perhaps someone smarter than me can explain something.

When these scumbags decide to start stealing why do they always steal an outrageous amount? I think I heard this guy stole $50 billion but why in the hell so much? If it was taking a million here or a million there then perhaps he could have gotten away with it. There have been other cases where hundreds of millions were stolen, which to me seems like it would eventually have to be caught onto. Is it simply a greed issue? Mental issues? Was $1 billion not enough? Why the other $49 billion?

 

[Michael Reuben]

The short answer is: They don't. Most swindles are for much smaller amounts and never make the news. This made the news precisely because it was so enormous, went on for so long, and was conducted by someone previously regarded as a pillar of both Wall Street and society. (You'd need a contemporary Dickens to write the story.)

As to the whys -- a lot of people are asking that. I doubt there will ever be a satisfactory answer.

 

[Chris Lockwood]

In a true Ponzi, there are no real investments, and money from new "investors" is used to pay back old ones, so it looks at first like people are getting a good deal.

For example, Bob, Jim, Sam, and Tom each give me $1000, in that order. I take the money from Tom and give each of the other guys $1200 back. So now they have made a 20% return in a short time and think I'm great, which helps me get more "investors." At this point I would have $400 of Tom's money left.

Then Sally gives me $1000, and I pay $1200 to Tom, making him a nice profit. I'm up $1000 now (previous $400 + $800 left from Sally).

So as long as I can keep getting new people to join, it looks like I'm a financial genius... but all I'm doing is taking money from some people and giving it to others. I'm not investing it in a business or stocks or anything that could generate a profit.

Eventually it will collapse because there is a finite number of people in the world, if nothing else.

What I'm not sure about Madoff is whether he originally set out to rip people off, or just made bad investments and used Ponzi-like tactics to keep it going.

I've heard that a lot of his victims came to him, asking him to invest their money, rather than him recruiting them.

 

[Holadem]

See the link I posted. Of course he recruited them; the exclusivity of his investments was an intentional ploy to attract investors, many (most?) of who felt privileged to be "allowed" into something this selective.

The article doesn't spell it out as such, but it's clear that having your money with Madoff was something of a badge of coolness or status symbol. You have to marvel at the diabolical genius required to engineer something like that.

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H

 

[Edwin-S]

I'm surprised that he is still breathing.

 

[drobbins]

For a 78(?) year old man to get life in prison (probably the resort one not a real prison) is not a punishment at all - especially for the extensive damage he has done to so many people and charitable organizations. Being as he probably will have reaped the benefits of his scheme for more years than he will be in prison, he effectively got away with it, or maybe he will live for a long time.

 

[Brian Perry]

On Thursday, CNBC's hottie Erin Burnett actually wondered aloud whether Madoff should be water-boarded to get more info regarding the co-conspirators who absolutely must have existed. The parallel was made that this was financial terrorism, and that getting to the bottom of the Ponzi scheme and punishing all involved was critical to restoring confidence in the financial system.