Wednesday, December 5, 2012

How did Bernie Madoff Got Away with His Ponzi For So Long?

English: Bernard Madoff's mugshot
English: Bernard Madoff's mugshot
(Photo credit: Wikipedia)
Bernard Madoff ran the largest Ponzi scheme (in terms of amount of money involved) in US history, and it is difficult to track... just how far back did Bernie Madoff ran this Ponzi scheme?

The original thinking was that Bernie Madoff started the Ponzi after the 1987 stock crash. However, in early 2012, Federal prosecutors charged several Madoff employees in a conspiracy to defraud, alleging that Madoff's Ponzi scheme went all the back to the 1970's, and he had plenty of help along the way, despite his claim that he acted alone. Frankly, this Ponzi was so big he could NOT have acted alone.

But there must have been a moment that he turned from honest trader to "pay Peter with Paul's money", right? According to a Madoff interview by Diana Henriques, author of Wizard of Lies, the Madoff story, Madoff claimed he could not remember such a transition. Which seems to suggest three scenarios:

  • He honestly can't remember (unlikely)
  • He remembers, but choose not to say it 
  • There was no such crossover: he had always been a scam
None of which is particularly comforting. 

But how did he convince people to leave him TENS OF BILLIONS OF DOLLARS? Through charm and supreme confidence in himself, that he can tell a lie with a straight face. Maybe he even convinced himself of the lie he had been telling. 

The most charming of scammers are so convinced of themselves they wear that like an armor, spiffy and shiny. After all, their job is to convince you that they are extraordinary, AND they will compliment you for believing in them, never mind the adage "Extraordinary results require extraordinary proof". They encourage you to believe the results WITHOUT extraordinary proof other than history (history of consistent returns) which can easily be faked. 

People who really do extraordinary work are not out there charming people. Steve Jobs can be charming at times, but he's at his best being a stern demanding boss who want something done, and is willing to berate people for those extraordinary results. 

Don't believe the charm, in other words.
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