It's All a Ponzi Scheme

What Madoff Made Off with? -- Picture courtesy of Yahoo

by blogSpotter
America was shocked, simply shocked when 70 year old investment strategist Bernard Madoff was recently arrested. The genial, well-liked and well-connected businessman was charged by the FBI with the largest investment fraud ever perpetrated by a single individual -- 50 billion dollars. How could this pillar of society who formerly chaired the NASDAQ stock exchange do something so heinous? The grandfatherly Madoff headed his own well-regarded investment security firm from 1960 until his arrest this year; who would've dreamed it?

Madoff made off with money from some of the most prestigious (and usually financially savvy) people and groups; among those sucked in: HSBC Bank, Lappin Foundation (its 401K) and even several celebrities including Kevin Bacon. People who normally know better, knew worse. Consider the following "mommilies":

"If it seems too good to be true it probably is".
"Water doesn't flow up hill".
"There's no such thing as a free lunch".

Why do the platitudes of the wise seem to lose their influence when needed the most? I have more news for everyone so shocked; it's all a Ponzi scheme. Wall Street itself is a Ponzi scheme. I've often wondered why people of the early-21st century have been so eager to privatize Social Security -- thus using their retirement for a Day at the Races. Let's look at the definition of Ponzi Scheme from dictionary.com:

“Ponzi scheme - a pyramid investment swindle in which supposed profits are paid to early investors from money actually invested by later participants”

If you replace “swindle” with “arrangement”, that’s basically how all stocks and mutual funds behave. The investment houses can make no promises about what the returns will be, but they’re certainly glad to take your money, the money of a new investor, up front. Greater pyramids were never built in Egypt, and all of this is legal. It is the very definition of how it works.

In his defense, Madoff did nothing but add more blur to an already blurry line – he only did ‘what was in his nature’ and what is in the nature of unbridled capitalists everywhere.

In my quasi-socialistic, deterministic mind-set I like gains that are measured, modest and within reason. Fixed rates are preferable to variable rates. Low, guaranteed returns are preferable to speculative big returns. The tortoise predictably beats the hare, according to Aesop’s fable -- there's no disagreement there. And in the bullshit world of high finance, pyramids come tumbling down.

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