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Posts Tagged ‘Bernard Madoff’

I found a perfect encore to my recent reference to the scandalous ponzi scam of Bernard Madoff: Natalie Angier of the New York Times recently described evidence that deceitful behaviour is a product of evolution:

Deceitful behavior has a long and storied history in the evolution of social life, and the more sophisticated the animal, it seems, the more commonplace the con games, the more cunning their contours.

In a comparative survey of primate behavior, Richard Byrne and Nadia Corp of the University of St. Andrews in Scotland found a direct relationship between sneakiness and brain size. The larger the average volume of a primate species’ neocortex — the newest, “highest” region of the brain — the greater the chance that the monkey or ape would pull a stunt like this one described in The New Scientist: a young baboon being chased by an enraged mother intent on punishment suddenly stopped in midpursuit, stood up and began scanning the horizon intently, an act that conveniently distracted the entire baboon troop into preparing for nonexistent intruders.

Biologists distinguish between such cases of innate or automatic deception, however, and so-called tactical deception, the use of a normal behavior in a novel situation, with the express purpose of misleading an observer. Tactical deception requires considerable behavioral suppleness, which is why it’s most often observed in the brainiest animals.

See more of this fascinating take here.

So lying Madoff was no low-life scum–he was the worst and best example of human development.

For me this begs the larger question: if deceit is an ability gained through evolution, then honesty is a primitive attribute? If so does this place evolution on a moral compass? We are evolving to a propensity for less ethical or immoral behaviour?

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In just a week, Bernard Madoff has reinserted the term ponzi scheme back in the public vocabulary. As we discussed earlier, these schemes are a lopsided business model and have been victimizing investors and the public for decades. Various financial commentators such as Peter Schiff and Max Keiser are beginning to echo sentiments that the U.S. economy is, in hindsight, resembling a larger scale ponzi scheme itself.

Shifting our focus back on the man who brought back our attention to this economic phenomenon, one has to wonder at the motivations and circumstances that created the Madoff scandal. Ponzi schemes are nothing new but every new incarnation doesn’t cease to disturb me. This Madoff caper in particular has three things I find bothering.

The first thing that disturbed me about the Madoff case is the high-profile nature of the parties that were affected by it. Madoff’s client list reads like a who’s-who-of-the-elite in the U.S.

Fox News reported that wealthy socialites comprised Madoff’s list of ruined clients:

Many of his investors came from the enormously wealthy enclaves of Palm Beach, Florida and Long Island, New York, where people had invested billions in Madoff’s firm for decades. He was a fixture on the Palm Beach social scene, and was a member of some of its most exclusive clubs, including the Palm Beach Country Club and Boca Rio Golf Club, where he drummed up much of his business.

The Wall Street Journal describes Madoff as a household name among elite circles:

During golf-course and cocktail-party banter, Mr. Madoff’s name frequently surfaced as a money manager who could consistently deliver high returns. Older, Jewish investors called Mr. Madoff ” ‘the Jewish bond,’ ” says Ken Phillips, head of a Boulder, Colo., investment firm. “It paid 8% to 12%, every year, no matter what.”

Evidently, the ability to make money grow consistently is a somewhat of a nectar to the rich folk, and arguably was the key in creating the brownie points for Madoff’s pedigreed credibility. In an analysis that Andy Kessler of Forbes on the Madoff tale, he drew some similar points in qualifying Madoff’s motivations in this context: (more…)

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This film clip is related to The Greater Fool Theory: Bernard Madoff’s Ponzi Scam.

What is a “Ponzi scheme”

http://en.wikipedia.org/wiki/Ponzi_scheme

 Ponzi scheme is a fraudulent investment operation that involves paying abnormally high returns to investors out of the money paid in by subsequent investors, rather than from the profit from any realbusiness. It is named after Charles Ponzi[1]. The term “Ponzi scheme” is used primarily in the United States, while other English-speaking countries do not distinguish in colloquial speech between this scheme and other forms of pyramid scheme[2].

The scheme usually offers abnormally high short-term returns in order to entice new investors. The perpetuation of the high returns that a Ponzi scheme advertises (and pays) requires an ever-increasing flow of money from investors in order to keep the scheme going.

Now the juicy part of this video is when Peter Schiff says that the national debt of the United States is financed based on a Ponzi scheme. Just check out his statements starting 6:38 of the video. But to really appreciated the way it unravels, watch it from beginning to end.

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Bernard Madoff’s record-breaking fraud case made the headlines recently. Here’s the news item in the unlikely case you missed it:

NEW YORK (Reuters) – Bernard Madoff, a quiet force on Wall Street for decades, was arrested and charged on Thursday with allegedly running a $50 billion “Ponzi scheme” in what may rank among the biggest fraud cases ever.

The former chairman of the Nasdaq Stock Market is best known as the founder of Bernard L. Madoff Investment Securities LLC, the closely-held market-making firm he launched in 1960. But he also ran a hedge fund that U.S. prosecutors said racked up $50 billion of fraudulent losses.

Madoff told senior employees of his firm on Wednesday that “it’s all just one big lie” and that it was “basically, a giant Ponzi scheme,” with estimated investor losses of about $50 billion, according to the U.S. Attorney’s criminal complaint against him.

See more here.

This is not the first time ponzi scams have hit the public eye nor will it be the last. This latest affair with Madoff, although the amounts are larger and the victims include high profile individuals and institutions, the logic (or shall we say, illogic) of investment scams remain the same. About a year ago I started an internet thread on investment scams, and in light of this recent news item, I’ll repost a short discussion on high-yield investment scams, pyramid ponzi scams, and multi-level marketing schemes: (more…)

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