A Giant Ponzi Scheme in the US

One individual in the US, Bernie L. Madoff, has been arrested in the US today as the Securities and Exchange Commission (SEC) issued this extraordinary Press Release:

http://www.sec.gov/news/press/2008/2008-293.htm

Quote :

The SEC's complaint, filed in federal court in Manhattan, alleges that Madoff yesterday informed two senior employees that his investment advisory business was a fraud. Madoff told these employees that he was "finished," that he had "absolutely nothing," that "it's all just one big lie," and that it was "basically, a giant Ponzi scheme." The senior employees understood him to be saying that he had for years been paying returns to certain investors out of the principal received from other, different investors. Madoff admitted in this conversation that the firm was insolvent and had been for years, and that he estimated the losses from this fraud were at least $50 billion...
Madoff founded the firm in 1960 and has been a prominent member of the securities industry throughout his career. Madoff served as vice chairman of the NASD, a member of its board of governors, and chairman of its New York region. He was also a member of NASDAQ Stock Market's board of governors and its executive committee and served as chairman of its trading committee

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This article from Clearing House suggests that much of the Credit Default Swap business, amounting to 2 trillion dollars or thereabout, is a Ponzi scheme.
It also reports that the Fed has refused a legitimate FOI Request by Bloomberg dating back to last August.

http://www.informationclearinghouse.info/article21210.htm

wikipedia:“A Ponzi scheme is a fraudulent investment operation that involves promising or paying abnormally high returns (‘profits’) to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business. It is named after Charles Ponzi...One reason that the scheme initially works so well is that early investors – those who actually got paid the large returns – quite commonly reinvest (keep) their money in the scheme (it does, after all, pay out much better than any alternative investment). Thus those running the scheme do not actually have to pay out very much (net) – they simply have to send statements to investors that show how much the investors have earned by keeping the money in what looks like a great place to get a high return. They also try to minimize withdrawals by offering new plans to investors, often where money is frozen for a longer period of time...The catch is that at some point one of three things will happen:

(1) the promoters will vanish, taking all the investment money (less payouts) with them;

(2) the scheme will collapse of its own weight, as investment slows and the promoters start having problems paying out the promised returns (and when they start having problems, the word spreads and more people start asking for their money, similar to a bank run);

(3) the scheme is exposed, because when legal authorities begin examining accounting records of the so-called enterprise they find that many of the 'assets' that should exist do not."

Pam Martens, the writer, says:

Quote :

But outcome 3 is the most fascinating area of departure from the classic Ponzi scheme. Legal authorities have, indeed, examined the books of these firms, except for one area we’ll discuss later. They found worthless assets along with debts hidden off the balance sheet instead of real depositor funds. Instead of arresting the perpetrators and shutting down the schemes, Federal authorities have developed their own new schemes and pumped over $2 trillion of taxpayer money into propping up the firms while leaving the schemers in place. Equally astonishing, Congress has not held any meaningful investigations. This has left many Wall Street veterans wondering if the problem isn’t that the firms are “too big to fail” but rather “too Ponzi-like to prosecute.” Imagine the worldwide reaction to learning that all the claptrap coming from U.S. think-tanks and ivy-league academics over the last decade about efficient market theory and deregulation and trickle down was merely a ruse for a Ponzi scheme now being propped up by a U.S. Treasury Department bailout and loans from our central bank, the Federal Reserve.

Ponzi schemes are horrendous, and generally leave communities in bits, whilst the promoters escape with the proceeds.

The worst side effect, even worse than the immediate cash loss, is the bitterness and blame that can linger on in small communities for decades after the promoters have vanished.

The one I'm most familiar with happened in Kells, Co. Meath about 3 years ago. The town was ripped up by this affair.

It was known as the PIP (People in Profit scheme)

Attention Kells Pipsters

Call by Kells Community for Immunity from prosecution Witnesses


3 years later it is not settled. and may not be for some time.

I will relate the stoty of The Airplane in Boston later