Bernie Madoff: Biggest Scammer of Modern Times
You’ve all heard of Ponzi schemes, taking in money with the hope of a fruitful return but not really producing any tangible asset through that money, just moving it from someone’s pocket to another, and through this maintaining a clumsy model until inevitably crashing as cash flow slows down. The scheme is as old as time itself. But modern day sophisticated citizens don’t really fall for blatant Ponzi schemes by sleazy sales people, but a certain sector sees the scheme pop out year after year no matter how much the regulation tries to keep it in check, today we’re gonna learn about such a scheme led by a well known individual, Bernie Madoff.
Bernie was an American Investment Banker who for 17 years organized the largest Ponzi scheme in history. He was the Chairman of Nasdaq, a method of split-strike conversion was formed by Madoff through which he guaranteed steady growth and most importantly not promising outlandish returns to his clients, this meant he perfectly blended into the rational crowd because he didn’t promise anything that was too good to be true. A traditional Ponzi scheme works when you bring in more investors and start to move your money around the upper branches, meaning those who invested first. Bernie operated at a large scale and this meant making calculated investment decisions that generated profit and side by side also raking in investments that meant the cash flow was always healthy and there was no suspicion of fraud.
Bernie kept the scheme going by keeping the big investors happy, The big four of wall street were also involved with Bernie. Those who don’t know the names of these 4 individuals just need to know that they were the main juggernauts of the New York Stock Exchange. Bernie deposited initial investments of those big players in Chase Manhattan Bank and the interests generated from that deposit would prove to be sufficient enough to generate more and more value to the mid level clients and the reputation of Bernie made sure to attract more lower tier clients, Bernie simply used those new investors to pay off the initial important individuals thereby keeping the narrative alive and the scheme kept growing.
He also showed himself as an elite, not accepting investments from shade clients and being only associated with the trusted ones. In an interview to The New York Times he showed his humble side by saying “the returns were really nothing special, given that the Standard & Poor’s 500-stock index generated an average annual return of 16.3% between November 1982 and November 1992. ‘I would be surprised if anybody thought that matching the S&P over 10 years was anything outstanding,”
Madoff finally admitted to being a fraudster to his sons who worked in the same company. After the 2008 crush, people grew skeptical of the stock market and the influx of new investments stopped. People started to take their money out of the market and this is where all the schemes crashed. Madoff had to come clean, no way he could still continue on this path. He received 150 years for securities fraud and other criminal activities.
We have this unproven confidence that the modern systems are foolproof and no level of grifters can game the system, as being proved again and again that the systems are merely a checkpoint. Any level of human ingenuity can find a loophole, the responsibility now falls on us to be aware of where we put our money and to invest smartly. Knowing about how stocks work can be daunting, but if you wanna play then you must learn. Otherwise you’re a sucker.
