Bernie Madoff...

Re: Bernie Madoff...

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

Re: Bernie Madoff...

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

Re: Bernie Madoff...

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.

Re: Bernie Madoff...

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

Re: Bernie Madoff...

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

Re: Bernie Madoff...

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?

Re: Bernie Madoff...

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

Re: Bernie Madoff...

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.

Re: Bernie Madoff...

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

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H

Re: Bernie Madoff...

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

Re: Bernie Madoff...

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

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H

Re: Bernie Madoff...

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 ?

Re: Bernie Madoff...

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?

Re: Bernie Madoff...

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.

Re: Bernie Madoff...

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.

Re: Bernie Madoff...

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

Re: Bernie Madoff...

I'm surprised that he is still breathing.

Re: Bernie Madoff...

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.

Re: Bernie Madoff...

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.

Re: Bernie Madoff...

It all depends on the sentence. Anything greater than 25 years, and he goes to a maximum security prison where you'd best not drop the soap. That's why a lengthy sentence is important, even though he probably won't live another 25 years; a lighter sentence carries the possibility of a white-collar prison.

Personally, I was aghast at the resources that the NYPD had to expend to keep him under house arrest in his luxury penthouse when the judge wouldn't revoke his bail. I was glad to see him go to jail after his guilty plea. This guy's the very definition of a flight risk.

Re: Bernie Madoff...

If I thought waterboarding were ever justified (and I don't), and if its use on anyone could restore confidence in the financial system (and it wouldn't), Bernie Madoff wouldn't be on the list. He's a thief -- on a huge scale, yes, but he didn't do anything that hasn't been done many times in the past without rocking the financial system.

By contrast, what CNBC has done for the last few years is a relatively new phenomenon, and as Jon Stewart remarked after watching a clip of one of Ms. Burnett's colleagues doing a fawning interview with Allen Stanford, another huge Ponzi schemer, "I don't know which guy I'd rather see in jail."

So, Ms. Burnett, if you truly think waterboarding the guilty will help restore confidence in the the financial system, the line forms to the right. Get in behind Jim Cramer.

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It's pretty pathetic when the "fake" news show does a better job of exposing this mess than the "real" news shows who, instead of doing their jobs, have made the situation worse over the years.

Re: Bernie Madoff...

I'm not a big Cramer fan, but I think CNBC is getting an unfair rap. As with any media outlet that takes advertising, CNBC cannot easily bite the hand that feeds it. How many people burned by purchasing a GM car wish that the glowing review in Motor Trend was a bit more honest? No, buying a car is not as important as deciding where to invest, but the principle is the same...people need to take these pundits' comments with a grain of salt.

Re: Bernie Madoff...

Then, with all due respect, what's the point of having a CNBC at all? You might as well just have the stock ticker running full-screen. Editorial independence is a cornerstone of journalism, which is why you can have a newspaper review that pans a book or movie right next to a quarter page ad for said book or movie. CNBC has always been glorified entertainment. In normal times, the pundits spoke with a similar level of accuracy to the local weather man's seven-day forecast. But these are not normal times, and I'd wish the so-called experts would just admit they don't know what the hell is going on instead of pontificating with a false impression of authority.

Re: Bernie Madoff...

I couldn't disagree more. CNBC is to the Wall St what the rest of the mainstream media is to Washington: The US media media is an inherent part of the very establishment it is supposed to be the watchdog of. Their mandate to watch that crowd and inform the rest of us is the very last thing on their list of priorities.

At least Cramer appeared contrite. The rest of them don't see anything wrong with what they do.

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H

Re: Bernie Madoff...

What exactly do you think they do?

They promote capitalism, they report on the market, they interview people from various backgrounds, many of whom disagree on whether certain policies are good or bad. I don't expect them to blow the cover on the Bernie Madoffs or Stanfords of the world when the SEC can't. (I do question their objectivity with respect to coverage of GE, which is CNBC's parent company.)

Yes, many of their "expert" stock picks have been poor, some famously so. But look at it this way...don't you think someone watching CNBC eventually becomes more knowledgeable and informed about money and the markets? I think so. But CNBC is fundamentally about entertainment.

Re: Bernie Madoff...

I suspect this is where we differ philosophically.

It may indeed by true that CNBC is all about entertainment. But since they present themselves as a news channel, then I expect them to behave like one and do real reporting. Does this mean they should be the ones to catch the Madoffs and the Stanfords? Not necessarily, although it's not beyond the realm of possibility for reporters to expose fraud and corruption. (Remember Watergate?)

Certainly, if a true reporter were interviewing someone like Stanford, who appeared to have miraculously sidestepped the subprime mess when no one else had, I would expect a serious inquiry into how he'd managed it. This might or might not have revealed him as a big-time crook, but who knows? Sometimes asking those questions leads to interesting results -- just as a financial analyst named Henry Markopolos deciphered Madoff's fraud in 2000 by studying his financial materials and trying to "reverse engineer" his investment results. (The SEC still has to answer for ignoring Markopolos' warnings.) I wonder what would have happened if CNBC had asked Stanford about his investment strategies instead of throwing softballs like, "How's it feel to be a billionaire?"

But it's not the failure to find old-fashioned thieves that's the real sin of financial journalism (or journalism in general). It's becoming a mouthpiece for whoever it is you cover and failing to do anything resembling an independent investigation and evaluation. That's what news reporting used to be about and seldom is today.

Granted, that kind of news doesn't always play as entertainment, but it sure as hell would have been more valuable than what CNBC provided for the last few years. They became cheerleaders for Wall Street while Wall Street was taking us all down the path to ruin (and yes, I acknowledge that a lot of people are to blame, but I know Wall Street pretty well, and I place them right at the top of the list).


That's the problem, isn't it? I don't believe it for a second when Cramer says he was "taken in" by the CEOs at Bear Stearns or Lehman. Anyone with his expertise knew or should have known -- and long before 2008 -- that the easy money being made was illusory for most people except a handful of Wall Street players. But CNBC has to serve its advertisers first, not its viewership. What Edward R. Murrow so eloquently warned against, and Paddy Chayevsky so brilliantly predicted in Network, has now become so normal that people just say it as if there were nothing wrong with it: The news is "fundamentally about entertainment". And we've thereby lost a valuable source of oversight that had the potential to be a lot more effective than any regulatory office.

CNBC getting an unfair rap? Only if they continue to call themselves a news channel. They should change their name to E! Business.