When you start thinking about the mere mechanical and clerical magnitude of the work involved in dealing with $50B, you come to several conclusions very quickly about Madoff:
1. He didn’t do it alone. He had more than his sons in on the scam with him. There’s a whole contingent of people behind this deal.
2. There is more than just Madoff’s firm and the feeder hedge funds involved here.
3. Uncovering all this dirt is going to kick over other mounds of poop. The SEC, especially the SEC under Chris Cox, has been utterly asleep at the switch (what did we expect by putting a Harvard grad in charge of the SEC?) There is a host of dirty funds and bad actors out there in Wall Street, just waiting to be uncovered.
4. If we see a couple more funds or companies get ferreted out who have scammed billions, it is all over for Wall Street. The public will lose trust in the investment and finance industry for a generation, just as they did after the crash of ‘29.
The only thing that would restore public confidence would be handing down some huge penalties for this level of fraud and grift. And I don’t mean house arrest or six months at Club Fed.
Well that sort of depends on how compartmentalized things were.
If the traders only traded, and the senior traders only filed their gains and losses to the accountants, and the accountants only sent Madoff spreadsheets, well... it would be quite easy to delete losing trades, add numbers to winning trades, etc. As long as he was able to attract 10% more money each year than he claimed he had on hand, he could pay every investor a 10% dividend.
During good times he may have even made some money. I don’t think it was a straight Ponzi scheme. I tend to think his confession of “Ponzi Scheme” was more a reflection of not just his operation but the market in general. In good years these brokerages were paying out $10’s billions in bonuses and profits but in 1 bad year they go bust! It doesn’t make sense unless the entire place (Wall Street) is crooked beyond all imagination - which I tend to believe is highly probable.
The market makers (of which Madoff was one) get away with murder. They can sell fake shares all day long if they want to. Options market makers too. If they get lopsided on puts or calls they can sell into the market shares that don’t exist to hedge their position. This is entirely unfair to all other market participants.
And Madoff is not the only integrated investor/market maker. All the houses were integrated. They all had their own market making desks, their own investment advisors, their own trading desks. Madoff was no different in that regard than Lehman ($100’s of billions in profit over the decade, defunct in less than 1 year), Merril Lynch (sold out before they went bust) and Goldman Sachs (Paulson’s firm).
I think they are all looking to make Madoff, not just a fall guy, but a guy to pin “market corruption” on. “Hey - that guy was bad, but we’re honest!”. Bull pucky. I am 38 years old and if I don’t see structural reform of the markets I won’t invest another dime in them. I’ll put my IRA into CDs and other hard assets. Maybe eventually buy apartment buildings or something I can see, touch, feel, know the people I’m investing in, fix their sinks and kick them out if they don’t pay the dividend (rent).
Just to keep the books on the scam would take dozens of people.
Cox has also been threatened or bribed by powerful forces
He's more stooge than moron
Powerful forces like the hedge funds that got in on the TARP bailouts yeserday