I’m wondering why they are so surprised that it could last so long or that it wasn’t a straight ponzi scheme.
The original and then subsequent investors would have no reason to pull out their original principal if they thought were consistently getting 10-17% returns. Most were most likely only taking out the “fake interest” profits, if even that.
More money was probably going in consistently than was being taken out. That would cover the people who actually wanted to take the FULL principal + “fake interest” out. Only after the credit crisis occurred were people pulling money out in large quantities did it become impossible for him to cover.
If the return on investment wasn’t needed, it was reinvested. The investor most likely paid taxes on that profit.
There really didn’t seem to be any reason to look too closely. The US treasury was getting their money, many of the investors got their original investment back.
The firms that invested their client money in Madoff are going to find themselves sued and possibly out of business.
This nightmare has consequences not yet clearly recognized.
Yes, it’s likely that until the past year most happy Madoff “investors” not only kept their original principal with him but kept adding to it, plowing back some of that 10-17% “return” they were seeing on their statements, etc. If they really believed that he was making them all this for real (and it was real to them as long as he could keep the new sources of money flowing in at sufficient levels).... and they did not have any immediate needs for more of their money, then Madoff did not face any great pressure for return of funds. Presumably that’s how he managed to keep it going for many years, until the current economic and credit crises changed everything and brought it all crashing down.
They all had paper “statements” that showed their funds growing and growing at a rapid pace, and perhaps only a tiny % of the Madoff investors ever asked for their “principal” to be cashed out.... only in case of a death or major crisis etc. would these funds need to be cashed out when people believed they had the best fund manager (or the best inside trader, as many of them may have believed).