Madoff $50 billion

How can the Madoff money be lost? Assets must be somewhere. He couldn't possibly have "consumed" that amount. Bill Gates couldn't manage it.

Reply to
PeterSaxton
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Do you know how a Ponzi scheme works?

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If that is what has happened then he will have paid most of it out to previous investors. It's a pyramid, with the bottom and biggest layer (or more) not getting anything because it is all gone.

Of course there willl be numerous reports and even more numerous rumours before we get anywhere near the truth about what happened.

Neb

Reply to
nebulous

Yes

Lets look at a very simple example.

Investor A invests $1m

Madoff consumes spends $1m

Investor B invests $2m and the money is used to pay back $1m capital and $1m "profits" to investor A

Investor B asks for $2m capital and $1m profits but there isn't any.

This means:

Madoff gained $1m which he consumed

Investor A received $1m "profits"

Investor B lost $2m

Compare this with what is supposed to have happened:

Madoff consumed $x

Investors who got money out received $y "profits"

Investors who didn't get money out lost $z

z = 50bn

x + y = z

This means that $50bn has been shared between Madoff and investors who got out

Are the investors who got $y "profits" entitled to keep them?

Reply to
PeterSaxton

That was sort of a rhetorical question. I've seen your posts before and was pretty sure you would know - but I dived in anyway!

In all likelihood it will be much more complicated than that - going back many years. What you haven't factored in are trading gains/ losses and also to some extent whether Madoff was skimming money off. Some reports seem to be suggesting he profited very little. He also seems to have given a lot to charity.

$y would also include a percentage of returned capital as well as profit.

It may also take a fair bit of work to determine the final value of Z.

Finding his records and working out what did happen may be a very big task. So in your example above it may be almost impossible to work out how much of $y legitimately belongs to the people who got it. You then have the not inconsiderable task of how you remove it from them. Sending a letter politely requesting its return may not be effective. The whole thing could land up costing hundreds of millions in legal fees.

My view is we will never know what happened - but it will quietly fade away because that will be what many people prefer.

Neb

Reply to
nebulous

y is only the "profits" because the capital put in by the investors who got their money out nets off with the capital returned.

If the loss is $50bn then the capital put in and returned isn't part of the equation.

Reply to
PeterSaxton

Why not? His job was to gamble the money on behalf of the investors. He was unlucky and his gambling strategy lost money. He attempted to hide the truth by presenting new investment as winnings from previous gambling.

But the money was consumed by the gambling strategy together with false earnings paid to previous investors and finally anything he skimmed off.

Which bit of this don't you understand? My guess would be the majority of it was lost in the gambling strategy.

Reply to
Nick

That's the only way I could understand what has happened to the money. It does seem that he was a very bad investor in a time when even bad investors have made money!

Reply to
PeterSaxton

I don't really get that.

you said:-

Investors who didn't get money out lost $z

I think you need to clarify that definition. If you mean the amount of capital people paid in over the 40 years or so it was running I would suggest it was a lot less than $50bn.

If you mean the book value of the shares, which is my understanding of what $50 bn represents, then z = x + y does not work.

Lets look at A. He submitted his share of Z, $10,000 ten years ago. With profits his shares had a book value of $19,000. He also drew out $7,000 four years ago. So how does he now stand in your book? Are you chasing him for $7k back? Or did he lose $19k? Or does his $10k less $7k mean he has lost $3k?

Neb

Reply to
nebulous

For a start he wouldn't be chased for $7,000 because that is his capital.

He didn't lose $19,000 because he got $7,000 back.

I would say he lost $3,000 plus any genuine profits his fund made. But as I say below that would be different to the investors point of view.

I see what you are saying about the $50bn. Say one investor invested $1m but over time they thought their fund was worth $5m then that would be classed as a loss of $5m to them.

Reply to
PeterSaxton

Some investment strategies can be based upon arbitrage and spreads but their profit making potential is limited.

To make a large return there has to be risk. It is quite possible for the dice to roll the wrong way even for a 'good' investor. It is also often the case that gamblers try to cover up a loss by making an even more risky bet.

This is the point of regulation. It should be possible for investors to gauge the level of risk that an investment fund or bank is taking and limits to that risk should be enforced. It is this regulation and monitoring that appears to have failed so dismally.

Reply to
Nick

They will mostly be in the hands of former investors who took their "profits". The 12% returns he was paying out must have cost quite a bit of that money.

Also, it will include unrealised profits for existing investors, money which never existed in the first place.

Reply to
Jonathan Bryce

I guess the $50bn "loss" has been others' gain, just as the banks bns of losses must now be in someone else's pockets.

What baffles me is how someone so thick could manage it at all. (I assume he's thick because... (a) Instead of hiding on any one of the many islands he could have bought, he stays put; (b) He wasn't found out - he simply confessed; (c) He didn't have the sense to stop at $49bn.

Reply to
Martin

Bitstring , from the wonderful person Martin said

Sort of - it's probably in retailers pockets, much of it. People bought $100k houses for $200k, and then the price collapsed back to $100k .. presumably the person they bought them from has spent the money on something. Or maybe the put it in the bank and it was loaned to the purchaser.

Either way it is again a loss against what was supposed to be there - just like the $50B wasn't there, the $200k house wasn't there either.

a) Worth a try. He'd have had to buy an army and navy too, I suspect.

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b) He was fixing to be, because investors were asking for money back which he didn't have.

c) You can't 'stop', it's an ever increasing treadmill - the only way to not have investors pulling out money you don't have is to keep announcing (and paying ) profits you didn't make.

It falls to bits when the investors have to sell even the 'best (imaginary) performing' funds because they need the cash to prop things up elsewhere.

Reply to
GSV Three Minds in a Can

The money has to disappear somewhere.

12% pa is not an order of magnitude bigger than he could have achieved. Only a few percent will have disappeared into the hands of the first investors.

Where has the rest gone?

Reply to
tim.....

Maybe he didn't bother investing after a while and was just taking money from some people and paying it out to other people?

Reply to
PeterSaxton

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