The Fifty-Billion Dollar Ponzi Scheme

The assets of Bernard L. Madoff Investment Securities are now frozen. The Wall Street tycoon, himself, once touted as “the best of the best”, was arrested by federal agents and charged with orchestrating a $50-billion Ponzi scheme.

Mr. Madoff was arrested at his Upper East Side apartment in Manhattan last Thursday by F.B.I. agents, after his two sons — both of whom work for the company — reported that he had confessed to them that his money-management business was “basically, a giant Ponzi scheme” and “a big lie.”

Source: http://www.nytimes.com/2008/12/17/business/17madoff.html?em

What is a Ponzi scheme? In the Gangster Underworld, it was called “robbing Peter to pay Paul”.

Wiki: A Ponzi scheme is a fraudulent investment operation that involves paying abnormally high returns to investors out of the money paid in by subsequent investors, rather than from the profit from any real business. It is named after Charles Ponzi. The term "Ponzi scheme" is used primarily in the United States, while other English-speaking countries do not distinguish in colloquial speech between this scheme and other forms of pyramid scheme.

The scheme usually offers abnormally high short-term returns in order to entice new investors. The perpetuation of the high returns that a Ponzi scheme advertises (and pays) requires an ever-increasing flow of money from investors in order to keep the scheme going.

The system is destined to collapse because there are little or no underlying earnings from the money received by the promoter.

TO THE LETTER OF THE SCHEME: The Madoff Touch

When he was arrested last week, Mr. Madoff estimated that investors lost as much as $50 billion in the fraud, according to court filings. Mr. Madoff has said the scam was a Ponzi scheme, a type of fraud in which early investors are paid off with money from later victims, until no more money can be raised and the scheme collapses.

Source: http://www.nytimes.com/2008/12/17/business/17madoff.html?em

THERE IS A DAY OF RECKONING

There is one fact that rings true in all Ponzi schemes, and that is its inevitable collapse. It appears that Master Madoff keep juggling the books, robbing Peter and paying Paul, until there was no more money to pay Paul. Or, maybe it was the crush of a falling stock market and mass exodus of investors that brought Madoff face to face with his own illiquidity. It appears that greed in the excess has been the undoing of many wealthy investors who put all of their trust in the Wall Street guru

[Report from http://www.foxnews.com/story/0,2933,468824,00.html]

From individual investors to small businesses to doctor's cooperatives — and even to the town itself — Fairfield, Conn., gave its money to Bernard Madoff. And now it's left with a pile of old statements telling investors how much money they never really had… Madoff, the former chairman of Nasdaq, was arrested by federal officials last week on charges he orchestrated an elaborate Ponzi scheme, defrauding investors of up to $50 billion and leaving a trail of financial devastation in his wake.

Eddie Griffin Commentary

It was reported that in order to get into Madoff investments ventures, the investor had to open an account, with a minimum amount of a million dollars. Imagine! Fifty-billion dollars vanishes on paper, first; hence, maybe the reason behind why Madoff keep different sets of books. (Was he playing a shell game with the financial records?)

When the name of the game is complexity, then those with the most convincing financial gibberish and jargon can easily con the naive investor, by flirting with their greed instinct, right on the tip of their taste bud. Madoff caught fish from a barrel with old fashion devil bait.

The biggest Wall Street bailout is now beginning to look like the largest heist in American history, even bigger than Madoff’s $50 billion Ponzi scheme. Who can trust Wall Street now?