Saturday, December 20, 2008

What was Madoff doing?

One of the big questions about Madoff's insane scam is how he thought he would get away with it. Ponzi schemes are inherently unstable, and yet there are indications that he was running this one for decades.

I've read nothing in the media really explaining what he was up to, or why he crashed at this point, perhaps because no one knows. But I would presume the following:

1) He tried to create a Ponzi scheme that would be sustainable over a long period of time by controlling his growth rate. One reads all this stuff about how he used the exclusivity vibe and wouldn't accept just anyone's money. With the rate of return he offered, all he needed to do was grow by a little over 10 percent a year (plus whatever he was taking off the top), and perhaps he felt he could do this for a very long time by showily accepting only so much a year in new accounts. Arguably, this design and his careful and controlled execution of the growth rate made this the cleverest and best-executed Ponzi scheme ever. Perhaps with luck it could have lasted until he died at a normal age.

2) What finally brought him down now? The stock market collapse didn't do it directly, since actual asset prices verged on being irrelevant to the scheme. Presumably, the bad times dried up his new capital and caused suddenly cash-poor investors to want redemptions, leading to a run on the bank.

All this reinforces Krugman's point that Madoff's operation wasn't all that different from what the rest of Wall Street was doing. E.g., pocketing insurance premia that are simply money in the bank until you finally have to pay and can't (the story of AIG) is pretty much the same wine in a different bottle.

1 comment:

Minh Nguyễn said...

Trong vô vàn các cơ sở thẩm mỹ đang cung cấp dịch vụ khiến bạn đau đầu, mỏi mắt tìm kiếm câu trả lời cho bấm mí Hàn Quốc giá bao nhiêu.

Không chỉ thế, Green Tara sẽ giúp bạn giải đáp mọi thắc mắc liên quan đến cách làm cho mắt to tự nhiên.

Đến Green Tara để trải nghiệm dịch vụ và được tư vấn tận tâm nhất. Với đội ngũ y bác sĩ nhiều năm kinh nghiệm Green Tara sẽ mang đến cho bạn đôi mí mắt đẹp và hoàn toàn tự nhiên nhờ bấm mí hàn quốc

Với ưu điểm lợi thế công nghệ được chuyển giao 100% từ Hàn Quốc, bấm mí hàn quốc sẽ khiến cho bạn hoàn toàn hài long với diện mạo mới. Đến với Green Tara, bạn sẽ không phải lo lắng về bấm mí Hàn Quốc có vĩnh viễn không hay nhấn mí mắt hàn quốc có đau không