# How do you piss away 50 billion dollars? **URL:** \ **Category:** Great Debates\ **Created:** [December 15, 2008, 7:35am UTC](https://boards.straightdope.com/t/how-do-you-piss-away-50-billion-dollars/477219 "2008-12-15T07:35:32Z")\ **Posts on this page:** 20\ **Page:** 1
**Author:** ![astro](https://avatars.discourse-cdn.com/v4/letter/a/9dc877/32.png) [@astro](https://boards.straightdope.com/u/astro)\ **Post date:** [December 15, 2008, 7:35am UTC](https://boards.straightdope.com/t/how-do-you-piss-away-50-billion-dollars/477219/1 "2008-12-15T07:35:32Z")
Unless Madoff was burning the investment money in some giant pyre where did it all go? By all accounts he wasn’t living insanely large. Assuming he had even minimal level of investment savvy how do you burn up 50 billion dollars? ---
**Author:** ![Shalmanese](https://avatars.discourse-cdn.com/v4/letter/s/45deac/32.png) [@Shalmanese](https://boards.straightdope.com/u/Shalmanese)\ **Post date:** [December 15, 2008, 7:41am UTC](https://boards.straightdope.com/t/how-do-you-piss-away-50-billion-dollars/477219/2 "2008-12-15T07:41:20Z")
The same way you can lose a couple of million dollars gambling. First, you start with small losses and then you keep increasingly upping the stakes in order to make that money back. ---
**Author:** ![Manduck](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/manduck/32/256_2.png) [@Manduck](https://boards.straightdope.com/u/Manduck)\ **Post date:** [December 15, 2008, 8:09am UTC](https://boards.straightdope.com/t/how-do-you-piss-away-50-billion-dollars/477219/3 "2008-12-15T08:09:51Z")
A Ponzi scheme starts losing money as soon as new investors stop appearing, so I guess that is what happened. ---
**Author:** ![Starving\_Artist](https://avatars.discourse-cdn.com/v4/letter/s/aeb1de/32.png) [@Starving\_Artist](https://boards.straightdope.com/u/Starving_Artist)\ **Post date:** [December 15, 2008, 8:12am UTC](https://boards.straightdope.com/t/how-do-you-piss-away-50-billion-dollars/477219/4 "2008-12-15T08:12:18Z")
> [@astro](#): > > Unless Madoff was burning the investment money in some giant pyre where did it all go? By all accounts he wasn’t living insanely large. Assuming he had even minimal level of investment savvy how do you burn up 50 billion dollars? He ran a business in which he gained new investors for his firm based on returns he supposedly netted and then paid to previous investors. The problem is that the returns he was paying to these people didn’t actually come from profits on their investments but from money received from other, newer investors. And he kept this up for several decades. So in other words, over a sizable period of time he ran up 50 billion dollars in monies paid to previous investors that he got from more current investors. A classic [Ponzi scheme](http://en.wikipedia.org/wiki/Ponzi_scheme). Ponzi schemes eventually collapse because a point is invariably reached where money needed to pay older investors exceeds income from newer investors and the scheme collapses. This is what happened with Madoff, and the 50 billion dollars has been lost because it has been dispersed in payments to previous private and institutional investors. As far as why he did it, in Madoff’s case I think he just got carried away with the size and prestige of his company and he resorted to Ponzi-like skullduggery in order to make it appear that he and his firm were a lot more successful than were. It seems to have been more an issue of ego (and not wanting to let certain people down, family members and so forth) than greed or the result of excessive personal spending. ---
**Author:** ![Magiver](https://avatars.discourse-cdn.com/v4/letter/m/4491bb/32.png) [@Magiver](https://boards.straightdope.com/u/Magiver)\ **Post date:** [December 15, 2008, 8:53am UTC](https://boards.straightdope.com/t/how-do-you-piss-away-50-billion-dollars/477219/5 "2008-12-15T08:53:02Z")
> [@Manduck](#): > > A Ponzi scheme starts losing money as soon as new investors stop appearing, so I guess that is what happened. The question is how does a $50B ponzi scheme excape an independent audit? ---
**Author:** ![Nametag](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/nametag/32/406_2.png) [@Nametag](https://boards.straightdope.com/u/Nametag)\ **Post date:** [December 15, 2008, 10:07am UTC](https://boards.straightdope.com/t/how-do-you-piss-away-50-billion-dollars/477219/6 "2008-12-15T10:07:28Z")
[Aksia](http://www.slideshare.net/hblodget/how-we-knew-bernie-madoff-was-a-fraud-presentation) seems to have been on top of things; re Madoff’s auditors: “Friehling & Horowitz had three employees, of which one was 78 years old and living in Florida, one was a secretary, and one was an active 47 year old accountant (and the office in Rockland County, NY was only 13ft x 18ft large). This operation appeared small given the scale and scope of Madoff’s activities.” ---
**Author:** ![SpectBrain](https://avatars.discourse-cdn.com/v4/letter/s/a87d85/32.png) [@SpectBrain](https://boards.straightdope.com/u/SpectBrain)\ **Post date:** [December 15, 2008, 12:34pm UTC](https://boards.straightdope.com/t/how-do-you-piss-away-50-billion-dollars/477219/7 "2008-12-15T12:34:22Z")
Is the 50 billion dollars the principal invested or does it also incude the dividends supposedly accumulated at 10 percent a year? ---
**Author:** ![Paul\_in\_Qatar](https://avatars.discourse-cdn.com/v4/letter/p/ccd318/32.png) [@Paul\_in\_Qatar](https://boards.straightdope.com/u/Paul_in_Qatar)\ **Post date:** [December 15, 2008, 1:04pm UTC](https://boards.straightdope.com/t/how-do-you-piss-away-50-billion-dollars/477219/8 "2008-12-15T13:04:52Z")
The money was (I guess) paid out to later investors. So when people thought they were getting returns on their money, they in fact were getting capital back. ---
**Author:** ![Burton](https://avatars.discourse-cdn.com/v4/letter/b/8e7dd6/32.png) [@Burton](https://boards.straightdope.com/u/Burton)\ **Post date:** [December 15, 2008, 1:31pm UTC](https://boards.straightdope.com/t/how-do-you-piss-away-50-billion-dollars/477219/9 "2008-12-15T13:31:18Z")
This is the last thing we needed right now. In China he’d be summarily executed for this. I’m starting to wonder if that’s a bad idea. ---
**Author:** ![Trepa\_Mayfield](https://avatars.discourse-cdn.com/v4/letter/t/edb3f5/32.png) [@Trepa\_Mayfield](https://boards.straightdope.com/u/Trepa_Mayfield)\ **Post date:** [December 15, 2008, 1:38pm UTC](https://boards.straightdope.com/t/how-do-you-piss-away-50-billion-dollars/477219/10 "2008-12-15T13:38:50Z")
He was just doing his [patriotic duty](http://www.youtube.com/watch?v=JnX-D4kkPOQ). (video link) ---
**Author:** ![JXJohns](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/jxjohns/32/469_2.png) [@JXJohns](https://boards.straightdope.com/u/JXJohns)\ **Post date:** [December 15, 2008, 2:27pm UTC](https://boards.straightdope.com/t/how-do-you-piss-away-50-billion-dollars/477219/11 "2008-12-15T14:27:26Z")
> [@pedescribe](#): > > He was just doing his [patriotic duty](http://www.youtube.com/watch?v=JnX-D4kkPOQ). (video link) I can’t believe that I have never seen that! OMG thanks for the laugh this morning 🙂 ---
**Author:** ![ralph124c](https://avatars.discourse-cdn.com/v4/letter/r/8797f3/32.png) [@ralph124c](https://boards.straightdope.com/u/ralph124c)\ **Post date:** [December 15, 2008, 3:07pm UTC](https://boards.straightdope.com/t/how-do-you-piss-away-50-billion-dollars/477219/12 "2008-12-15T15:07:28Z")
Question: how did Madoff falsify all those records? Supposedly, he was sending his investors 100-page transaction reports-if they bothered to read them they might have asked how he (madoff0 was generating those huge returns. What bothers me-these well-heeled investors are going to demand that the taxpayers bail them out! ---
**Author:** ![Merijeek](https://avatars.discourse-cdn.com/v4/letter/m/f05b48/32.png) [@Merijeek](https://boards.straightdope.com/u/Merijeek)\ **Post date:** [December 15, 2008, 3:15pm UTC](https://boards.straightdope.com/t/how-do-you-piss-away-50-billion-dollars/477219/13 "2008-12-15T15:15:54Z")
> [@Magiver](#): > > The question is how does a $50B ponzi scheme excape an independent audit? It was very “exclusive”, and what the members were given razzle-dazzle bullshit to keep them thinking something was happening that wasn’t happening. Kind of like a cult, really. -Joe ---
**Author:** ![BrainGlutton](https://avatars.discourse-cdn.com/v4/letter/b/82dd89/32.png) [@BrainGlutton](https://boards.straightdope.com/u/BrainGlutton)\ **Post date:** [December 15, 2008, 3:19pm UTC](https://boards.straightdope.com/t/how-do-you-piss-away-50-billion-dollars/477219/14 "2008-12-15T15:19:13Z")
> [@astro](#): > > **How do you piss away 50 billion dollars?** Piss away?! Have you **seen** his turnip?! ---
**Author:** ![astro](https://avatars.discourse-cdn.com/v4/letter/a/9dc877/32.png) [@astro](https://boards.straightdope.com/u/astro)\ **Post date:** [December 15, 2008, 3:30pm UTC](https://boards.straightdope.com/t/how-do-you-piss-away-50-billion-dollars/477219/15 "2008-12-15T15:30:32Z")
> [@Starving\_Artist](#): > > He ran a business in which he gained new investors for his firm based on returns he supposedly netted and then paid to previous investors. The problem is that the returns he was paying to these people didn’t actually come from profits on their investments but from money received from other, newer investors. And he kept this up for several decades. > > So in other words, over a sizable period of time he ran up 50 billion dollars in monies paid to previous investors that he got from more current investors. A classic [Ponzi scheme](http://en.wikipedia.org/wiki/Ponzi_scheme). > > Ponzi schemes eventually collapse because a point is invariably reached where money needed to pay older investors exceeds income from newer investors and the scheme collapses. This is what happened with Madoff, and the 50 billion dollars has been lost because it has been dispersed in payments to previous private and institutional investors. > > As far as why he did it, in Madoff’s case I think he just got carried away with the size and prestige of his company and he resorted to Ponzi-like skullduggery in order to make it appear that he and his firm were a lot more successful than were. It seems to have been more an issue of ego (and not wanting to let certain people down, family members and so forth) than greed or the result of excessive personal spending. So over time _some_ investors actually got close to 50 billion (less his expenses) in appreciation back out of the investment vehicle/scheme. I didn’t understand that. I thought most of the money was staying in the fund and accumulating (fake) equity. ---
**Author:** ![DanBlather](https://avatars.discourse-cdn.com/v4/letter/d/f4b2a3/32.png) [@DanBlather](https://boards.straightdope.com/u/DanBlather)\ **Post date:** [December 15, 2008, 3:40pm UTC](https://boards.straightdope.com/t/how-do-you-piss-away-50-billion-dollars/477219/16 "2008-12-15T15:40:42Z")
> [@astro](#): > > So over time _some_ investors actually got close to 50 billion (less his expenses) in appreciation back out of the investment vehicle/scheme. I didn’t understand that. I thought most of the money was staying in the fund and accumulating (fake) equity. Just when they did “draws”. Example, I put in $50M and take out $1M a year for my foundation. ---
**Author:** ![Umbriel2](https://avatars.discourse-cdn.com/v4/letter/u/4af34b/32.png) [@Umbriel2](https://boards.straightdope.com/u/Umbriel2)\ **Post date:** [December 15, 2008, 3:50pm UTC](https://boards.straightdope.com/t/how-do-you-piss-away-50-billion-dollars/477219/17 "2008-12-15T15:50:36Z")
> [@astro](#): > > So over time _some_ investors actually got close to 50 billion (less his expenses) in appreciation back out of the investment vehicle/scheme. I didn’t understand that. I thought most of the money was staying in the fund and accumulating (fake) equity. Ponzi’s original scheme was framed in a simple “pay me $X and in a few weeks I’ll return to you $Y” terms. It required a lot of cash turnover just to keep going. It had to keep growing or it would collapse. It’s more common for modern “Ponzi schemes” to have more limited cash outflows – Investors are encouraged to keep their money invested so as to make even more. The amount investors still do withdraw is more than covered by the net investments, but growth in membership can safely plateau after a while. I don’t think anywhere near $50 billion got paid out. It was probably simply lost, most likely in the traditional fashion of buying high and selling low, and probably accelerated by a strategy of “doubling down” as _Shalmanese_ described above. The current financial crisis flushed out the fraud both by crushing the fund’s actual investments and by causing investors to make unusually large withdrawals (out of fear and need for cash). ---
**Author:** ![Blalron](https://avatars.discourse-cdn.com/v4/letter/b/35a633/32.png) [@Blalron](https://boards.straightdope.com/u/Blalron)\ **Post date:** [December 15, 2008, 4:35pm UTC](https://boards.straightdope.com/t/how-do-you-piss-away-50-billion-dollars/477219/18 "2008-12-15T16:35:59Z")
> [@Burton](#): > > This is the last thing we needed right now. In China he’d be summarily executed for this. I’m starting to wonder if that’s a bad idea. “White Collar” criminals who lose millions (or billions!) of other peoples money steal more time away from peoples lives than serial killers. At a certain point, losing enough money becomes just as bad as killing somebody. Our government acknowledges this when it does cost/benefit calculations on environmental policies. Look at this story from the [Washington Post](http://www.washingtonpost.com/wp-dyn/content/story/2008/07/19/ST2008071900185.html): > [@](#): > > Last week, it was revealed that an Environmental Protection Agency office had lowered its official estimate of life’s value, from about $8.04 million to about $7.22 million. That decision has put a spotlight on the concept of the “Value of a Statistical Life,” in which the Washington bureaucracy takes on a question usually left to preachers and poets. > > This value is routinely calculated by several agencies, each putting its own dollar figure on the worth of life – not any particular person’s life, just that of a generic American. The figure is then used to judge whether potentially lifesaving policy measures are really worth the cost. 50 billion divided by 7.22 million equalls 6,925 lives worth of money lost! I’m not a big fan of the death penalty, but if murderers deserve it so does Enron-scale thievery. ---
**Author:** ![Duckster](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/duckster/32/1244_2.png) [@Duckster](https://boards.straightdope.com/u/Duckster)\ **Post date:** [December 15, 2008, 5:24pm UTC](https://boards.straightdope.com/t/how-do-you-piss-away-50-billion-dollars/477219/19 "2008-12-15T17:24:53Z")
> [@Merijeek](#): > > It was very “exclusive”, and what the members were given razzle-dazzle bullshit to keep them thinking something was happening that wasn’t happening. > > Kind of like a cult, really. Take a look at some “cult” members … > [@](#): > > Top world financial groups on Monday revealed massive potential losses from an alleged scam run by Wall Street trader Bernard Madoff, admitting they were fooled by a classic pyramid investment fraud. > > British, French, Japanese and Spanish banks and funds said investments totalling billions of dollars (euros) could be wiped off their balance sheets by a scandal that is set to affect some of the richest people in the world. > > Royal Bank of Scotland said it could lose about 400 million pounds (598 million dollars, 444 million euros), joining a growing list of banks and investors in Europe, Asia and the United States struck by the scandal. > > Shares in Santander, the biggest bank in Spain and the second largest in Europe after HSBC , plunged after the lender said it had an exposure of more than three billion dollars to Madoff Investment Securities in New York. Source: [Breitbart News Network](http://www.breitbart.com/article.php?id=081215131118.p474bpih&show_article=1) > [@](#): > > New York Mets owner Fred Wilpon, GMAC LLC Chairman J. Ezra Merkin and former Philadelphia Eagles owner Norman Braman were among the dozens of seemingly sophisticated investors who placed money on what could prove to be history’s largest financial scam. > > – snip – > > And at least three funds of hedge funds – which raise money from investors and farm it out to hedge funds – may have significant losses. Fairfield Greenwich Group and Tremont Capital Management of New York placed hundreds of millions of their investors’ dollars into funds overseen by Mr. Madoff. On Friday, Maxam Capital Management LLC reported a combined loss of $280 million on funds they had invested with Mr. Madoff. Source: [http://online.wsj.com/article/SB122914169719104017.html](http://online.wsj.com/article/SB122914169719104017.html) > [@](#): > > HSBC has emerged as one the largest victims of Bernard Madoff’s alleged fraud with potential exposure of about $1bn to the investment manager’s collapsed venture. > > Confirming an earlier report in the Financial Times, the bank said in a statement that it had provided financing to “a small number” of institutional clients who invested in funds with Mr Madoff. Source: [http://www.ft.com/cms/s/0/5446156e-ca1f-11dd-93e5-000077b07658.html](http://www.ft.com/cms/s/0/5446156e-ca1f-11dd-93e5-000077b07658.html) Some “cult.” ---
**Author:** ![Magiver](https://avatars.discourse-cdn.com/v4/letter/m/4491bb/32.png) [@Magiver](https://boards.straightdope.com/u/Magiver)\ **Post date:** [December 15, 2008, 6:41pm UTC](https://boards.straightdope.com/t/how-do-you-piss-away-50-billion-dollars/477219/20 "2008-12-15T18:41:44Z")
> [@Merijeek](#): > > It was very “exclusive”, and what the members were given razzle-dazzle bullshit to keep them thinking something was happening that wasn’t happening. > > Kind of like a cult, really. > > -Joe As was posted above, the “auditing company” was a joke. I don’t see how this escapes public scrutiny. We’ve already seen large accounting firms disgraced, but this doesn’t even qualify as ridiculous. It’s the mechanical equivalent of a bank that stores money in a paper bag behind the counter. [Next page](https://boards.straightdope.com/t/how-do-you-piss-away-50-billion-dollars/477219.md?page=2)