Perhaps Wall St. Really Is Just One Big Ponzi Scheme

from the finding-that-last-sucker dept

Thu, Dec 11th 2008 5:22pm — Mike Masnick

While we've always been pretty skeptical of the way Wall St. worked, at least it seemed like there was some semblance of reality on which it was based -- even if much of that foundation was a rickety house of cards. Yet, with the revelations coming out about Bernard Madoff's potentially $50 billion fraud, it makes you start to wonder if anything on Wall Street is real. Madoff admitted yesterday that his entire firm was "one big lie" and "basically, a giant Ponzi scheme." It appears that rather than paying investors back based on profits they earned, he was pulling money out of the principal from other investors -- and now there's basically nothing left. Not surprisingly, the firm's website touted Madoff's "high ethical standards." What's even more astounding is that no one happened to notice this was happening until he 'fessed up. At a time when one of the biggest things missing in the market is confidence, this is not going to help. Yes, there is some reality backing at least some of Wall Street, but people are going to have an increasingly difficult time figuring out what is real, and that's not going to encourage much investment. Conceptually, what Wall St. does is provide a very useful service for putting money to use where it's best needed as investment capital. In reality, it looks like there was an awful lot of fraud baked into the system. That's not good for anyone, and the fallout from this is not going to be pretty.

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Filed Under: bernard madoff, fraud, ponzi scheme

29 Comments

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TX CHL Instructor (profile), 11 Dec 2008 @ 6:16pm

This can't be good.
This can't be good. Money is going to go to mattresses, much like it did in the 1930's.

What a crazy world. Wasn't it bad enough that we just elected a Chicago politician with an almost completely blank resume to be POTUS?

Yup, things are going to change.
--
www.chl-tx.com Without the 2nd amendment, the rest of the document is just wishful thinking. And we are almost there anyway.
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Anonymous Coward, 11 Dec 2008 @ 6:23pm

You have to salute the moxie of committing fraud in the billions. If you steal, don't steal the ride, steal the train. The problem is getting away with it.
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Anonymous Coward, 11 Dec 2008 @ 6:28pm

Can someone please tell me what the price of a stock is based upon? Profit? Dividend? What? Seems these days share price is based on company performance (profit) irregardless that a $50 stock might only pay $1 in dividend. So tell me again how profit helps me? Why would I buy a stock that has a 2% return? Oh, on the hopes the price goes up? But why would the next guy pay $55 for the stock when that would reduce his return to 1.8%?

Stocks are legalized gambling. Their value is based on nothing more than the hope that the next sucker will pay you more than you payed the last sucker.

If stock prices were based on something real like dividend, we could not have these large swings in the market. As stocks go down, return goes up assuming dividend remains the same.
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i guess the bs is just starting, 11 Dec 2008 @ 6:35pm

Re: This can't be good.
"Wasn't it bad enough that we just elected a Chicago politician with an almost completely blank resume to be POTUS?"

relevance ?
The two are related in your head, but is there anything real to support it ? Just what are you attempting to say ?
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Your Gawd and Master, 11 Dec 2008 @ 6:35pm

Re: This can't be good.
What a crazy world where some half-wit can start out talking about Wall Street and then switch immediately to his retarded POLITICAL agenda. Nice work there. Why didn't you throw in a "white power" statement while you were at it, Adolf.
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grammarian, 11 Dec 2008 @ 6:40pm

You have principle where you should have principal.

Apparently the scammer had the opposite problem.
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Anonymous Coward, 11 Dec 2008 @ 6:50pm

Re:
Stock prices are based on speculation, that's it and that's all. Why would you want to invest in something that is it's real value? That would be about the same as keeping your money in your wallet.
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MikeR, 11 Dec 2008 @ 6:52pm

Ponzi Scheme?
The only real difference I see is Wall Street is (mostly) legal.
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Quantity Surveyor Man, 11 Dec 2008 @ 7:10pm

Its always a good idea
It is great thinking putting gambling addicts in control of the economy, no?

Now lets put drug addicts in charge of hospitals.
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Mike (profile), 11 Dec 2008 @ 7:11pm

Re:
You have principle where you should have principal.

Oops. Fixed. Thanks.

Apparently the scammer had the opposite problem.

Ha! Indeed.
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You are stupid, 11 Dec 2008 @ 7:35pm

Re:
The value of everything is based on what someone will pay for it.

If a company is profiting, but not paying dividends, it is growing, and hopefully increasing profits further. At some point, a 'sucker' will like the looks of that stream of income and pay a lot of money for the stock, or it will stop growing and start paying dividends.

Stock prices are based, in part, on expected dividends, not current dividends.

"As stocks go down, return goes up assuming dividend remains the same" That is making a HUGE assumption. Stocks go down for many reasons, but one of them is that investors don't think they'll be able to pay dividends at the same level.

In the future, try regardless instead of irregardless. While irregardless is in the dictionary, it is only used by morons.
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Come on, 11 Dec 2008 @ 7:40pm

Re: Ponzi Scheme?
Here is the difference: Ponzi schemes pay old investors with funds from new investors. Companies(for the most part) pay all investors with the money from the company earns from doing business. Not a small difference.

The market is real. It is based on real value, created by real companies. The values of these companies(like everything else in the world) change. That does not make them any less real.
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No, 11 Dec 2008 @ 7:42pm

Re: Its always a good idea
The world would be a better place if all the gambling addicts put their money in the stock market.
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Anonymous Coward, 11 Dec 2008 @ 8:42pm

That Last Sucker
"from the finding-that-last-sucker dept"

The last sucker being the taxpayer to bail these guys out.
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Mike B, 11 Dec 2008 @ 8:52pm

re: come on
Did you not read this part?

" It appears that rather than paying investors back based on profits they earned, he was pulling money out of the principal from other investors "

That's exactly a Ponzi scheme. Which is what this was.
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movie buff, 11 Dec 2008 @ 8:54pm

Fraud
Merry Christmas from Wall Street... Madoff will never be able to repay society for the staggering amount he stole
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Anonymous Coward, 11 Dec 2008 @ 10:05pm

Government sponsored Ponzi scheme
Isn't this how the U.S. works Social Security?
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Raymond Stride, 11 Dec 2008 @ 10:36pm

Ponzi Scheme
If you think the stock market is crazy,take a look at these crooks and the software to predict the future. What is amazing is they say that "big word" over and over. INTEGRITY.
www.TRADERTECH.COM

22 Categories: $25,200
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Twinrova, 12 Dec 2008 @ 3:56am

One step closer...
"That's not good for anyone, and the fallout from this is not going to be pretty."
We can all only hope this statement is true.

Yes, I know, many of you think I'm completely nuts to expect a depression, but it's time for one.

Only then will people sit back and redefine what "business" is all about.

Here's a damn hint for you: IT'S NOT JUST ABOUT PROFITS!
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Anonymous Coward, 12 Dec 2008 @ 4:25am

Re: Re:
Wow, I can't use a word that is in the dictionary now? I guess you know better than Webster? Oh if only I were so smart. I must beg forgiveness from you, the mental giant.
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Anonymous Coward, 12 Dec 2008 @ 6:25am

Let me be clear , after what Nardelli did to Home Depot i would not buy a Chrysler if they gave it to me at half
price.
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Anonymous Coward, 12 Dec 2008 @ 6:28am

I would sell all stock right now before we realize that
wall street is just a big ponzi , who before their fall are
trying to suck the government into it along with the next
generation who is gona have to pay for it.
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Anonymous Coward, 12 Dec 2008 @ 6:28am

I would sell all stock right now before we realize that
wall street is just a big ponzi , who before their fall are
trying to suck the government into it along with the next
generation who is gona have to pay for it.
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Anonymous Coward, 12 Dec 2008 @ 7:40am

Re: This can't be good.
You obviously hit a nerve with a few bleeding hearts.
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Anonymous Coward, 12 Dec 2008 @ 8:44am

Re: This can't be good.
Without the 2nd amendment, the rest of the document is just wishful thinking. And we are almost there anyway.

That is quite possibly the stupidest statement I have ever read. Except maybe for the rest of your asinine comment.

What a crazy world. Isn't it bad enough we let people like you out on the streets?

And before you reach some other stupid conclusion, I am a gun owner, a conservative and a Christian. You're just an id10t.
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Tom, 13 Dec 2008 @ 6:43am

Editorial of Editorial
Hey Mikey

This is not news, or commentary, or editorial. It is a summary of something you heard on the wire. How about sticking your neck out a little and forming a new thought.
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Mike, 14 Dec 2008 @ 10:52am

Perhaps? No, _*definitely*_
From the mythology of "economies always expand" that's taught in every business school, to the "sucker's deal" told to every individual investor to "buy and hold" [when every Wall Street firm is doing exactly the opposite with multiple trades per second/minute/hour/day], to the fact that the internationalization of capital markets [such that $$$ can flow *instantly* to other jurisdictions where regulations are less stringent], the whole mess is one big disneyland where emotionally-arrested "men" and "women" get to play with other people's money at no consequence to themselves [and life-altering consequences to the rest of us].
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smart guy, 8 Feb 2009 @ 6:27am

the stock market is an instrument for the wealthy
to rob the unfortunate. Things will always be the same,
as long as the masses are kept ignorant, the financial
kings will make them do whatever they wish, let it be
stock market, or some other scam...
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silver trading dude, 3 Jan 2011 @ 1:36pm

Silver Trading
Seriously! Those are some great insights. I think that wall street is so messed up. It's such a crap shoot if you are going to make money or lose it. There is really no sure formula to this anymore. It's been totally abused.
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