Friday, December 12, 2008

Hedge fund Ponzi scheme uncovered to no surprise to readers of this blog.

New York (HedgeCo.Net) - Former chairman of the Nasdaq Stock Market Bernard Madoff was arrested yesterday and accused of orchestrating a ponzi scheme that bilked some $50 billion out of investors, authorities say.

The founder of Bernard L. Madoff Investment Securities allegedly has been running the scheme for years, using new money coming into the fund to pay returns to other investors, keeping up the fa├žade of an admirable performance. In his alleged confession to the FBI, Madoff took the blame, saying he “paid investors with money that wasn’t there.”

According to the SEC complaint, Madoff informed two senior employees at his firm yesterday that he was “finished,” and that his business is “all just one big lie,” and “basically, a giant Ponzi scheme.” He also allegedly admitted that the firm was insolvent and had been for years.

Wahey, here we go. Regular readers (both of you) will recall that this blog was obsessing (use the labels below, Solutions to the financial crisis) over the economist Hyman Minsky who characterised derivatives into hedge funds, futures and Ponzi schemes. Now this one has come to light. $50 billion. 50,000,000,000! And they guy was well-respected. Now he faces a possible court room experience, followed (if found guilty) with 14 years in Gitmo - no sorry, that should be 14 hours community service, maybe. Awful. Terrible that this should happen to a rich person.

What is really terrible is that the whole world is still solemnly accepting the credit-based imaginary monetary system as the only possible reality, rather than looking at economics in the light of physical, biological and ecological realities, and reframing our monetary policies accordingly.

The question is, how many other derivative funds like this are there? By definition, any financial rewards system that depends for future growth to pay present investors is a Ponzi scheme. That means in fact that the entire world financial scheme is Ponzi, since we either have to have economic growth or economic recession - nothing in between. No concept of a steady state eoconmic system. Green Parties have been objecting to the unsustainable growth in throughput in the economy for 30 years, ignored or ridiculed by grey politicians. Maybe sometime soon economists will begin to realise that economics must be founded on sound ecology.

1 comment:

Pia said...

Lacking control make me lost confident to capitalist system. Stock market is no longer a channel for the public to share profit with the business. It is a channel for the business to stole money from the public. We have to reevaluate the whole system, the consumption philosophy.