Which is probably one of the key aspects of most scams. Prey on the greed of the scamee. So many scams involve the scamee thinking they are on the inside of something not quite legit - when the scam is that they are actually on the outside.
My rule of thumb for Ponzi schemes is simple, and can be summed up in one number. 20%. For whatever reason it seems that almost all schemes I have seen have all had a return rate of about 20%. It seems this is the magic number that provides enough of a greed response to allay fears, yet allow the scheme enough room to function long enough to build in size.
Actually, I wasn’t trying to smear anyone. I was noting that it seems to hurt more when you lose “Free” money. Guys who lose $100 Grand of their own money are more pissed about losing the $400 Grand profits in their accounts that turns out to be fictional.
Those “profits,” as you call them, I’d call investment gains. It’s not “free” money. And if I lost both $100,000 of my own money and $400,000 of investment gains, I think it would be reasonable to be upset about the loss of the larger amount.
It was interesting to learn from another SDMB thread that fraud by the Greek government was discovered because their numbers did not conform to Benford’s Law.
I wonder if Madoff’s data was checked to see if it was Benfordian.
This reminds me of something I read a while ago. Suppose you have a quarter in your pocket and walk by a slot machine. For the heck of it, you put the quarter in and pull … and hit the jackpot. You sit down at the machine and eventually run your winnings up to $1000. Then you start losing and leave the machine only when you are out of money. How much did you lose?
I’d say $.25, but the article I read said that was a fallacy, and that you lost $1000.25. So maybe someone here can explain this.
If you’d won the $1000 and then walked away from the machine when you had $500.25, have you lost $500 or won $500?
Yes - See Western Europe and/or Japan or even China and even isolated segments of the US. Despite the current financial difficulties, there are few doubts capitalism can continue to function without steady population increase.
No. Even if it were the case, it’s a common fallacy to claim any kind of plan which has an increasing number of participants as a factor is necessarily a Ponzi/pyramid scheme (Ref: some varieties of anti-Social Security folk).
You gained $1000, lost $1000, and had a net loss of $0.25. Your loss of $1000 and your net loss of $0.25 are both meaningful, there’s no mutual exclusivity or fallacy.
For instance, for tax purposes the net loss is what matters - you don’t owe taxes on the $1000 you temporarily gained and later lost. It can’t be a fallacy if you’re just following the IRS and tax code.
But if you think you didn’t win $1000 in any sense, well that’s crazy.
To be specific. many of these people THOUGHT they knew exactly what Madoff was doing. Madoff’s legitimate business consisted of brokering the transactions of large blocks of stocks for comercial and industrial clients. This would’ve given Madoff the opportunity to engage in a form of insider trading called “front running”, in which he would buy stocks for his customers in advance of a large order, then sell them at a higher price after the large order had run up the the price of the stock. Or vice versa. Although this is seen as harmless by the folks that think of themselves as entitled— in reality this skims profits from the ordinary investors, who are buying and selling at a slightly less favorable price because of the “skim”, much in the way that high frequency trading skims profits from the average investor.
This is why his large customers were careful NOT to question the obviously bogus explanation of his market strategy, they really did think they were above the rules and “entitled” to this money. To make it more perverse, he was viewed as an honest, giving person because he let so many charitable institutions in on his scam.
In 2006 I did some work for one of the major Madoff accomplices. They were unusually nice to me for a while and tried to engage my socially ( which my clients NEVER do), probably until they determined that I didn’t have any savings worth stealing. The art consultant that was working on the same project put his life savings of 10 million into the fund and lost it all.
It all depends on when you measure from. Since you clearly could get up and walk away when you had the $1000.25, you clearly have lost that much. However, behavioral economists have found that we put money in different mental buckets. The $1,000 in winnings goes into a different bucket than the original quarter, which is why we might feel we only lost a quarter.
A similar effect is loss aversion, which explains why people don’t get out of the market soon enough. If they sell when a gain has decreased they feel they have locked in a loss. Yes, these seem contradictory, but it shows that we are irrational about a lot of this stuff.
For the second example, it still depends on where you set your base. It could be either.
The whole Madoff scheme (and the underdog effort to bring him down) is explained in great detail in the documentary Chasing Madoff, which came out in 2011. The leader of the very small group of fraud investigators who were trying to expose him was in fear for his life; he knew there was so much money involved that if the wrong people found out he was investigating the matter, they could very well seek to have him killed. For some period of time he had a CCW permit, and regularly checked around and under his car (for signs of tampering) before getting in and starting it.
According to the documentary, in the end the only thing that brought Madoff down was the market crash/recession in fall 2008. People suddenly had no money to invest, and so Madoff could no longer attract new investors to pay off the old ones; his Ponzi scheme finally collapsed, and he turned himself in, knowing that prison would probably be the safest place for him once his victims learned they had been ripped off.
Good thread…actually , there are many such frauds going. Anyone who promises an above-average return, for years and years (with no risk) is suspect. In Madoff’s case, his "fund’/scam returned 8.5% every year-with no downsides.
A few years ago, a local con man was caught-he was defrauding elderly clients-he had told them that he was investing in Mexican bonds. Of course, there were no bonds, just him paying off old investors with the money from new victims. What amazed me is that nobody ever checked the guy out-a few phone calls would have exposed him.
As someone who is fascinated by financial fraud, I’m a big fan of Harry Markopolis and I think his work was very impressive. I have read his book No One Would Listen many times, seen the film, and watched him in numerous interviews. That said, there is absolutely zero evidence that he was ever in any danger from Madoff or his investors. He has presented none, and none ever came out in the investigations of Madoff. He certainly enjoyed seeing himself as some kind of John Grisham hero who needed to carry guns and use law enforcement techniques to protect against shadowy threats, but as far as I can determine, all of it was entirely in his head.
There is no question that he was right about Madoff’s financial fraud, but I also believe that it’s likely that one of the reasons he was never taken seriously was that he behaved like a nut. All of his research was submitted anonymously to protect him from imagined threats. Once he attended an event where Eliot Spitzer was present. He put on gloves to print out a copy of his submission so that it wouldn’t have fingerprints (!) brought it to the event, and handed it to someone working there, asking her to make sure that Spitzer got it. This is not the best way to make sure the Attorney General takes you seriously. I don’t know if he really believed his life was in danger, but it’s pretty clear that it wasn’t, and that acting like it was made the truly valuable information that he had less credible.
In a Ponzi scheme, those already in it survive by getting those not in it, to join them. Since this is harmful, it can be likened to a bite, or an infection. The process continues until there are just no more people left outside the scheme. The people in the scheme might, depending on the particular flavour, run rabidly after potential joinees, or shamble slowly but inexorably after them. A non-member can usually fend off one schemer but becomes overwhelmed by several. Baseball bats and guns may be found necessary.
There. Now I’ve done all the work, can someone just fucking SAY it already? Goddammit, the word ‘Ponzi’ already has the most important letters you need.
It may be true that there is/was no evidence of a threat, but with that much money involved (and the kinds of players that much money brings into the mix), I don’t really blame him for being paranoid.
Western Europe’s population is still growing, albeit mostly due to immigration (much of it illegal). Some countries, Spain and Italy for example, have very low growth rates. China is still growing as well, but it’s also a very slow growth. Japan’s population, on the other hand, is shrinking, although it’s only been doing so for the last three years or so.