Wednesday, December 24, 2008

Why did Madoff do it?

The big question to me is: Why did a man of Madoff's stature, reputation and background, literally robbed people and funds off billions and billions of dollars. This is a scandel in the making and one that has shattered the world of finance. No one knows the extent of damage and what domino effect would this have on other hedge funds and on the world economy on the whole. No more can rich and famous believe in their most entrusted financial advisors of long time.

Bernanrd Madoff, born in 1939 in the city of New York to a jewish family, started his firm in 1960 with a sum of $5,000. His firm made huge contribution to the formation of NASDAQ, to which he served as Chairman of Board of Directors. He brought several of his relatives into his firm and was known for philanthropic activities, contributing to a range of charitable organizations, educational institutions, cultural groups and jewish cause. Madoff made high level contacts in Jewih Circles and among the rich and famous, including members of elite country clubs and yatch clubs in New York and Florida, and the rich and royal in Europe, that helped him get funds.

Year after year, Madoff's fund paid high returns consistently to the investers, regardless of economic situation, which helped boost invester confidence. His fund was also attractive to others as it was not open for all but people could join in through invitation only. Alhtough, over the years, some people did raise doubts about the way Madoff conducted business and there were even complaints lodged to SEC, no proper investigation was undertaken. Madoff's firm also successfully avoided filings with SEC.

In December 2008, Madoff was arrested by authorities for running the biggest "ponzi scheme" ever that may have squandered as much as $50 billion of other people's and institutions' money. This fraud may have been going on since 1970s. Most of this money will never be recoved and the affected include banks, funds, charitable organizations, educational institutions and individuals.

Back to the million, rather billion dollar question: Why and how? Well, if he has been involved in fraud for decades, and held such high esteem and positions during all this time without getting noticed, then he was one smart person, or shall we call an evil genius? He was a fraud from day one and probably was totally focused on amassing huge sums of other people's money and be famous. Second, many people had put blind trust in him. This shows the vulnerability of not only the rich and famous but also jewish organizations that assumed that a fellow jew would not eat up their money like this. Third, SEC cannot be absolved from its very questionable role of ignoring red flags against Madoff's firm and its inability to act and scrutinize the company. Fourth and last, many experts believe that Madoff must not have acted alone. This is a story in the making and we may see more arrests in addition to more funds of funds being vanished.


  1. Welcoming to the world of blogging!

    The funny part is, the very people whose policies guided the world economy into the dumps, are now preparing for fatter bank balances by offering consultancy services!

  2. Thank You!

    Exaclty, seems like they are only interested in saving the rich.

  3. Socialism for the Rich

    There are some links there that you may find interesting too.