First off, keep your knickers on ladies and gents . . . by ‘best’, I mean the most incredible thing that has ever happened in the world! This guy’s a genius, my idol . . . just kidding.
Madoff, for those of you who are’nt familiar with him, committed the largest financial fraud in US history. He set up the biggest Ponzi scheme of all time, and was sentenced to 150 years in Federal prison! 150 years. When he gets out he’s going to barely recognise the world . . . Edinburgh will have trams. Syria, Israel, Egypt, there will be peace. We’ll all have ethanol powered cars and doctors will be able to regrow amputations and replace eyes. Salmond and his crazy bids for independence will be long gone. There will be a female president. NASA will have faded into non-existence before efficient private firms which will have colonised Mars, built a hotel on the moon, and will be developing interstellar travel (perhaps through a generational ship, stasis pods, an antimatter powered engine, or travel through the folding of space) . . . but let’s stop rambling. Obviously we’ll be dead. He’ll be dead.
Bernie Madoff will spend the rest of his life in prison.
Anyway, so what actually is a Ponzi scheme? I was never really sure until someone at Baillie Gifford (a prominent, private investment management firm based in Edinburgh) explained it to me pretty well when I did work experience there.
It’s basically when an ‘investment manager’ comes to you asking for you to entrust your money to their ‘firm’ and they’ll generate a good return on it. You do so, but instead of actually investing the money in the stock market, buying bonds and equities, the manager simply gives this money directly to another investor with a larger return on it, taking off a fee. Obviously, this is vastly simplified, but an elaborate scheme is built up on the foundations of deceit.
Now, you’d think this would be quite easy to ‘uncover’. Surely you can tell if this supposed legal investment firm is actually investing in some real shares or not? But it’s far more complicated than that.
He managed to keep this going for almost two decades.
But how stupid can you be? A Ponzi scheme will always, undoubtedly, inevitably come crashing down, because you’re always going to need new investors, but the more you have, the more money you need to pay the others, and then . . . KABOOM!