Why start believing him now?
What a week. What a year. Everything is outsized and outrageous it seems, from the crooks to the cash. Now comes another story that contains both crooks and cash: the world’s largest Ponzi scheme. FT:
The scale of the alleged fraud is mindblowing. According to the Securities and Exchange Commission’s statement, Mr Madoff has confessed to losses of “at least” $50bn. Such a figure raises questions. How could such a shortfall have arisen, given that Bernard Madoff Investment Securities had only $17bn in assets under management at the start of the year? The funds run by Mr Madoff were not advertised as leveraged, although derivatives were supposedly used to reduce volatility. But who now knows? Nothing about his “black box” investment process can now be believed…The biggest question, though, is how any scam of that size could remain a secret for so long.
Some people apparently figured it out a long time ago. WSJ: “Harry Markopolos, who years ago worked for a rival firm, researched Mr. Madoff’s stock-options strategy and was convinced the results likely weren’t real. ‘Madoff Securities is the world’s largest Ponzi Scheme,’ Mr. Markopolos, wrote in a letter to the U.S. Securities and Exchange Commission in 1999. Mr. Markopolos pursued his accusations over the past nine years.”
Question: if Madoff himself claims to have lost $50 billion, isn’t that precisely a reason to disbelieve the figure? Or should we start believing him now?
December 13th, 2008 at 6:07 am
Years ago when I worked for a large grain company, there was a trucker in our area that was buying grain for 20-40 cents a bushel more than we could sell it for. He told customers that the big grain companies were screwing them and making outrageous profits, and he was just being a good guy and paying a fair price. When our customers confronted us with his sales pitch we told them we thought it was a Ponzi scheme, but for a percentage of them, it just reinforced their perception that we were lying to them. Anyway, the scheme collapsed. Some farmers went broke and many more were financially crippled. I guess my point is that the sellers into the Ponzi scheme were all of a similar mentality. The people that didn’t sell to the trucker went by the old adage if something is too good to be true, it proabably is. I don’t know the details of the Wall St Ponzi scheme that collapsed, but am wondering if it is the same mentality that caused people to invest in that scheme as well.