Thursday, December 18, 2008

>$50 Billion Fraud: "Bigger Than All the Rest Put Together"

At $50 Billion, it stands alone as the largest investment swindle ever. Other swindles pale in comparison: Charles Ponzi's was $113 million (inflation-adjusted); con artist Lou Pearlman's may have been as high as $500 million; Tom Petters' scheme is alleged to have been $3 billion, but that figure is likely exaggerated.
What's more, even history's biggest single trading losses don't come close: Long-Term Capital Management lost $5.8 billion; and Société Générale earlier this year saw $7.1 billion go up in smoke.
Bernard L. Madoff's alleged investment fraud is going to dwarf them all, and stand in the record books as the con that was "bigger than all the rest put together." In a perverse way, its magnitude makes it worthy of the scope of the economic crisis which brought the scam to light. All Ponzi schemes will keep working until they don't -- that is, until the psychology turns and people start begin withdrawing big-time.
Yet Bernie Madoff had never had a losing year: He "paid 8% to 12%, every year, no matter what." Now more than 30 of his investors believe their losses could exceed $1 billion.
It may be a while before anyone knows how long this scheme has gone on: Madoff has been managing money since 1960. The SEC had received multiple warnings about Madoff beginning in 1992 -- but as the Wall Street Journal said about the SEC, "Each time, it blew its chance." Then again, how hard would you expect them to look at a guy who had actually served on an SEC advisory committee, and had been Chairman of the NASDAQ?



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