The fact that Jeffry Picower's estate is returning 7.2 billion dollars to the Madoff fund is difficult to understand except if Picower was a partner of Madoff. Apparently, Madoff relied on a core group of investors who provided Madoff with cash in key moments during the multi-decade Ponzi scheme to solve liquidity issues. Madoff was an exceptionally intelligent and experienced financier, so how he imagined that a Ponzi can be operated safely for long? What was his idea of how it was going to end? Is it possible that he has seen other Ponzis going on forever? and hoped to be among them? Or he had seen other Ponzis wind down quietly and hoped to be able to do the same thing? He must have had in mind some kind of end game.
My hypothesis at this moment is that there is a basic misunderstanding of Ponzi schemes. Madoff may have had the idea that a well managed Ponzi is viable forever. Many financial businesses, maybe all of them, are basically Ponzis. The American Social Security and many pension funds certainly are. Pic: Ponzi.
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According to his statements at the time of his conviction (and this is consistent with many embezzlers) he originally thought the Ponzi would last only a short while and be wound down, but then it spun out of his control and he could never think of an end game other than to keep it going. The crash of 2008 put pressure on the Ponzi and he tried to accelerate the payment of bonuses to his staff before it fell apart, which is what led his sons to become suspicious and then turn him in. Reportedly Madoff himself was shocked that it lasted as long as it did. There were many times he expected to be exposed and he never was, even though his enemies reported him to the SEC - their investigators were so incompetent that they found nothing even though he never bought or sold a single share of stock.
This is consistent with K's theory of life as a contest between the very stupid and the merely stupid, in which the merely stupid prevail.
K
I cant imagine he had nothing in his mind but forced by the circumstances to go on for such a long time.
Read Madoff's statements on this subject. He is never getting out of prison and has nothing to gain anymore by lying further.
Picower's widow's actions are hard to understand. It was my understanding that legally she was obligated to give back no more than maybe $2 billion. I suppose when you have that many billions (and apparently this does not exhaust the fortune) it really makes no difference - you can't spend them on yourself anyway. Her intention according to the statements made is to continue her husband's charitable work. I suppose she felt that this settlement itself was a form of charity that would bring relief to the defrauded. I think this is true. At least in some cases, people had invested their entire fortune w. Madoff and formerly rich retired people had to find jobs as supermarket checkers and such in order to survive. But still to agree to pay $5 billion more than the law requires? At the very least, with $5 billion at stake she could have kept this tied up in the courts for many years with an army of lawyers (itself a form of relief).
K
Maybe they are childless and they had decided to liquidate the fortune anyway. Gradually everything will be known.
I think guilt finally got to Madoff. Guilt and impatience: he got tired of waiting for someone to catch him. If he wanted to wind down the fund without getting caught, the market crash of 2008 would have been the perfect opportunity. He could have claimed that he suffered heavy losses in financials and distributed whatever really was there to investors.
There was nothing there. This was not a fund - each investor got (fake) statements showing what his individual positions were (created ex post facto to show gains - he would pick whatever stocks went up that quarter and show they as bought at the beginning and sold at the end. The only way he could have done this was to find stocks that crashed in 1 quarter and put those on the phony statements, but that would have triggered suspicion too because he ALWAYS showed a gain.
K
Till Bear Stearns collapsed unde the weight of the subprime market, it hardly showed a losing quarter. I had a similar thought to yours a few years ago when unemployed, it occured to me too that many of the recommended schemes to get rich; houses, stocks, enhanced education were Ponzis at least in form.
The 2008 panic ould have allowed Madoff to wind down the operation. He didnt do it. I have the suspicion that he was convinced that it could go on forever. Or at least another couple of years.
Presumably there is a competition amongst the Ponzi-meisters, as to who can keep the pyramid functioning for the longest time.
Perhaps there is a category in the Guiness Book of Records, or is it the Guiness Book of Rackets, I don't know.
All I know is that Madoff has now raised the bar, and will give Social Security a good run for its money (our money?).
Anon.
Bear Stearns invested in dubious instruments. Madoff "invested" his clients in conservative blue chip stocks - Comcast, Google, AT&T, etc.
http://www.scribd.com/doc/8976754/Madoff-Trading-Statement-November-2008
Even if he had suddenly lost his magic "touch" and started picking losers instead of winners, he couldn't have generated enough losses given the % of market decline - maybe he could have decrease the "portfolio" by 20 or 30% but this still would have left billions in fictitious money owed. Also, paradoxically, once word got out that Bernie had "lost it" then investors would have begun withdrawing from the scheme. The key in a Ponzi is managing cash withdrawals, not the fictitious account balances. As long as the "portfolio" never has to be liquidated then the fictional gains or losses are irrelevant. Ponzis always need fresh victims to provide cash to fund withdrawals by earlier players (cash is also needed to fund the Ponzi leader's lavish lifestyle and to pay off his various enablers). Once some external factor (a bad economy, demographic factors in the case of Social Security) reduces the inflows of fresh funds or increases demands for withdrawal, the jig is up.
K
Even after the market
K, we should go into business together.
Anon.
Ponzi is a faith based business. While people believes that their money is in good hands, they will not withdraw it and the Ponzi is solid. The only risk comes from panics, when people becomes frightened and hysterical. That is exactly the situation of banks, that have our money invested in long term debentures. Bernie had an intimate circle of good friends like Picower that helped him through these temporary situations.
It is possible that Picower's illness caused Bernie to panic and reveal that his Ponzi could not go on. May be he asked his son to help him and they delated him to the police. That's why his son hanged himself, like Judas Iscariot.
Also interesting is that Picower only made it into the Forbes 100 list in 2009, but had billions before then. How many other hidden billionaires are out there?
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