The $50bn con

[Other Means]

From The Times.

The FBI complaint states that Mr Madoff told his sons he believed the losses from his scheme could exceed $50 billion.

From The Telegraph.

Mr Madoff, 70, a former chairman of the NASDAQ stock exchange and a supposed pillar of the financial community, has been accused of defrauding hedge funds of billions with a fake investment scheme called a 'Ponzi'.

Holy, holy crap.

[Other Means]

Can I add that we're all doomed?

[Secondbrooks]

Just how much free jail-time one gets from that?

[gunnergoz]

Proof positive that the human propensity for greed is only exceeded by the human capacity for stupidity.

[costard]

Off topic, sort of -

if the chinese could effectively rid their economy of corruption over say, 5 years, they'd have a growth rate of what? - 4% per year?

It would seem to be harder for the developed economies to make this sort of gain - although I wonder, given the above - but I reason that the Western, and particularly English speaking economies have deteriorated in the the degree of acceptance given to corrupt individuals, tolerance of their behaviour. On one hand it would appear that [standards] did once exist, and define to some extent the success of the English speaking economies. Regard and respect displayed throughout the populace gives a cohesiveness to the sum/product of their work, the physical manifestation of their behaviours. Being taken for granted rankles, and when this turns into open displays of contempt for value of the individual, the society loses out - this is why you have to regard your inferiors (if any) as at least on a par as regard their needs.

Regard for the stench of corruption, and the courage to front it. These have gone in the pursuit of comfort, the easy way of life. Well, that's gone for a little while, maybe the others will come back.

Where did the money go? - oil?

[gunnergoz]

It was collected and reinvested into crappy dice rolls and lost. Something into nothing and vice versa and again.

Money as a multiplier of wealth has its limits, namely the power of persuasion that things are either getting better, or worse. Once people loose faith in the power of the machinery of economy, the intrinsic value of money is bound to drop. Only material assets have true value and that too is dependent upon demand for it.

So thinks an obvious non-economist.

[costard]

That begs the question, doesn't it - What do our leaders hope to achieve by throwing money at the problems that face them? - its not like it magically fixes stuff.

Paying for labour is all very well, but if the value of that labour is predicated on the continuing growth of something that is manifestly in the throes of death - I can only say, I'm glad I learned to use a shovel and an axe.

[gunnergoz]

The money spent so far on the bailout is, in my opinion, good money thrown after bad. We will not get it back; it will be frittered away on bonuses and executive golden parachutes or hoarded by banks in trembling fear of bankruptcy.

My vote would have been to allow all the rotten houses of cards that were the existing banks and investment firms to collapse of their own rotten accord. The funds should have been given to new financial institutions created under government aegis and supervision, which could have gone public after a while and the government could have gotten some return on its investment in them when it divested itself of them.

Nah...too logical for politicians to figure out, let alone economists.

[ASL Veteran]

This doesn't have anything to do with the banking 'crisis' or the 700 billion bailout. This is a completely separate issue. This deals with hedge funds and how they aren't regulated and things like "dark pools" that various wallstreet firms use. The fact that these things exist and are used for large transactions are the problem. If you make a trade on the open market (NYSE, AMEX, OTC, etc) then it's all above board and open. Large investment houses though set up 'pools' for their investors to trade in that are not connected to the open market. It's like an underground stock market in a sense and it's not regulated very much if at all. If this individual was running a Ponzi Scheme then he could have used the lack of regulation and oversight combined with his reputation to get people to invest in his scheme. It's an old trick. The unregulated hedge funds and dark pools just gave him cover because he never had to actually reveal what he was doing. http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5345051.ece

Here is some info about hedge fund regulation from back in March of 07 (It's not a new discussion)

http://knowledge.wharton.upenn.edu/article.cfm?articleid=1679

Here is a little bit about 'Dark Pools'

http://www.nysun.com/business/dark-pools-threaten-wall-street/64598/

This won't be the end of the hedge fund as some are predicting, but it may very well be the end of the unregulated hedge fund and the dark pool is probably toast too.

[Lars]

We're hearing that the smart money KNEW Bernie had to be cheating, because the returns he was generating were impossibly good. Many Wall Streeters suspected the wrong rigged game, though: They thought it was insider trading, not a Ponzi scheme. And here's the best part: That's why they invested with him.

One Madoff investor, himself a legend, told me that Madoff's performance "just doesn't make sense. The numbers can't be straight." Another sophisticated Madoff investor actually went through trade confirms in order to reverse-engineer the strategy and said, "it doesn't add up."

So why did these smart and skeptical investors keep investing? They, like many Madoff investors, assumed Madoff was somehow illegally trading on information from his market-making business for their benefit. They didn't consider the possibility that he was clean on that score but running a good old-fashioned Ponzi scheme.

Heh.

Waste no tears.

[mike_the_wino]

Bring back the stock for greedy louts like this one.

[Affentitten]

Heh.

Waste no tears.

It's the old adage: you can't con an honest man.

[Other Means]

Heh.

Waste no tears.

Ohhh so he was the wrong TYPE of dirty.

How had he not died of stress by now?

[dieseltaylor]

And yes the SEC seen doing sweet FA . I have found out through life, so far, if someone is doing exceptionally well the odds are they are cheating. I make exceptions for people like James Dyson.

For instance, Madoff seemed to make money even when the markets fell, a fact that didn't square with the way he was using put and call options to hedge against market moves, Casey said. "Madoff's return streams didn't correlate," he said.

Markopolos and another colleague, Neil Chelo, a former Rampart portfolio manager, also tried to unravel Madoff's strategy, but they, too, could not figure how it could work, Chelo said. David Henry, an independent investment adviser and friend of Markopolos, said Markopolos wrote at least one memo outlining why Madoff's strategy seemed amiss, which he shared.

Michael Ocrant, a former financial journalist, said one memo that Markopolos sent the SEC listed more than 28 warning signs the SEC should look in Madoff's business, and he remembers reading the words "Ponzi scheme" in it.

"Pretty much everything that's come to be, he laid out in exact detail," Ocrant said.

At the time Madoff wasn't very forthcoming. "It's a proprietary strategy. I can't go into it in great detail," he told Barron's magazine in 2001.The same year, he told Ocrant, "I'm not interested in educating the world on our strategy, and I won't get into the nuances of how we manage risk."

Both Henry and Casey recall Markopolos alerting SEC officials of his suspicions and giving them memos, starting with the Boston office around 2000, and later, according to Casey, contacting officials at the SEC's New York offices. Henry said yesterday that when he first heard of Madoff's arrest, he called Markopolos to compare notes.

Markopolos, Henry said, remarked, "It's about time!"

Ross Kerber can be reached at kerber@globe.com.

http://www.boston.com/business/articles/2008/12/16/how_a_pyramid_scheme_takes_shape?mode=PF

[Subvet]

Heh.

Waste no tears.

I'm sure there are plenty of examples like that. BUT, there were also a lot of retirees around my part of the world who trusted this guy with 100% of their savings. They could certainly be accused of being stupid, and probably a little greedy; but, these people got screwed and I feel sorry for them. I wouldn't want to be in my 70's and suddenly see my life savings vanish. Screwing the elderly out of their savings is a pretty common occupation down here (Palm Beach, FL), unfortunately.

[Lars]

Oh, they'll be getting some of it back. The lawsuits are already starting to fly.

http://online.wsj.com/article/SB122930077610905377.html?mod=special_page_campaign2008_mostpop

Unless, of course, they were direct investors and had the minimum $1 million to plop down. In which case, we're supposed to hate them anyway.

[JonS]

It seems expending all those resources on the War on Terror has managed to make the US less secure.

Mission Accomplished, or sumfink.

[costard]

Well sure, but in the short term you managed to feel good about beating up on some towel-heads, and the plutocracy made a bomb.

Mission Accomplished.

Still no movement on the systemic changes that need to take place to fix the problems - and the clock has been ticking for 18 months now. I'd say it's positive indication of brain-sucking aliens. Where's John Kettler when you need him?