Thursday, December 18, 2008
Perplexed
Re: The $50 billion lost in the Madoff hedge fund fraud -- where on earth did all that money go? Originally I had just assumed it was lost in bad stock investments, but I have been told by someone who used to prosecute these cases regularly that the people who run Ponzi schemes don't typically invest the proceeds, since they want to keep a pool of capital available to pay their "investors." Is this correct? There's no way Madoff could have spent $50 billion on just his own lifestyle, right? If anyone can demystify this situation for me, please do leave a comment.
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2 comments:
Since there aren't any profits, when people cash out they are receiving money from people who are cashed in. Suppose we both invest 100$. We both "earn" 10%. I take my 110$ out. You have 90$ left.
There's inherently a systematic loss in a Ponzi scheme, since people are receiving payments on profits that never existed.
Ah, the 10% payout! Thanks.
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