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Mick Weinstein, The Week's Best Stock Blogs

Is the Madoff Scandal the Story of the Year?

by Mick Weinstein

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Posted on Friday, December 12, 2008, 12:00AM
While all eyes were turned to the Big 3 bailout, another shocking, large-scale fraud case emerged in the finance world Thursday. As the WSJ reported: "Bernard L. Madoff, a former chairman of the Nasdaq Stock Market and a force in Wall Street trading for nearly 50 years, was arrested by federal agents Thursday, a day after his sons turned him in for running what they said their father called 'a giant Ponzi scheme.'"

• Paul Kedrosky finds the allegations "staggering," and provides the key excerpts from the SEC's complaint where Madoff confesses to "paying returns to certain investors out of the principle received from other, different investors." Said Madoff, according to the report: "It's all just one big lie."

• The anonymous fund manager/blogger Cassandra suspected for years that something was wrong with Madoff - it's a fascinating post: "Either he was crooked beyond belief or he was an evil contrapreneurial genius. Who would have thought he was both??!!"

• Michael Panzner quotes fund manager Doug Kass, who believes this could be "the biggest story of the year... it is bigger than Enron, bigger than Boesky and bigger than Tyco. It attacks at the core of investor confidence -- because, if true, and this could happen... investors might think that almost anything imaginable could happen to the money they have entrusted to their fiduciaries."

• Yves Smith wants to know where the money went: "This has to top what any dictator ever siphoned out of a banana republic... In the case of other Wall Street operations that are now toast, the losses were the result of very big losses on positions and overpaying themselves bonuses in years that appeared to be good, but if the profits had been risk adjusted, were not so hot. But a Ponzi scheme is all about fraud... So where did the dough go? Madoff had to know this would blow up. Wonder why he didn't flee to Panama."

• Greg Newton, who specializes in covering hedge fund shenanigans, digs up a 2001 report on Madoff's fund. The report, entitled "Madoff tops charts; skeptics ask how, wonders: "What is striking to most observers is not so much the annual returns... but the ability to provide such smooth returns with so little volatility." We may now know how that feat was possible.

• Felix Salmon says this may very well be the world's biggest ever heist: "Right now, there are a handful people whose world has suddenly been turned upside-down: who have, overnight, suddenly lost billions of dollars of dynastic wealth to a Wall Street con man... when has one man ever managed to steal $50 billion dollars?"

• Blodget: "we're hearing that the smart money KNEW Bernie had to be cheating, because the returns he was generating were impossibly good. Many Wall Streeters suspected the wrong rigged game, though: They thought it was insider trading, not a Ponzi scheme. And here's the best part: That's why they invested with him."

• Jim Cramer calls it "the highest profile hedge-fund scandal I may have ever seen... It's a gigantic green mass on the screen and its heading right for the psyche of this frail market."

Finally, Corrente wraps together today's two big stories: "The absurdity of the current debate on a loan to the Big Three automakers is that they're only asking less than one-third of a [$50 billion] Madoff Unit. Chump change!"

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185 Comments

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  • NB - Thursday, December 18, 2008, 5:40PM ET  Report Abuse

    • Overall: 2/5

    Bernie Madoff is nowhere near the story of the year; i wish journalists would stop wasting the reader's time with stupid headlines. You are not trying to sell copies of "US Weekly;" make the headline a little more objective. Here is a question for you - If it was 12/31/07, would you be more surprised that in 2008, 1) a large fraud would occur (in the end, i think you will find it was much less than $50 bil), or that; 2) Bear Stearns, Lehman Brothers, AIG, Citigroup, Wachovia, Merrill Lynch Ford, GM, and Chrysler would all go (or come close) to bankruptcy? Oh, and their is also that "little event" about Barack Obama getting elected president. Sorry, but not the story of the year. I like the quotes, but isn't it funny that you have a fraudster (Henry Blodget) throwing his two cents in? Finally, Jim Cramer sucks. He's just loud and says anything to keep him in the headlines; which equates to fame in this country. I love our country but our society is really "dumbed down."

  • STORMSTOCKER1 - Thursday, December 18, 2008, 4:11PM ET  Report Abuse

    • Overall: 4/5

    KIDS AND CHILDRENS "TOP DOZEN" FINANCE 101: 1. BUYER BEWARE. 2. ALL THAT GLITTERS IS NOT GOLD. 3..EVERYBODYS A FOOL IF A CROOK FOOLS EVERYBODY. 4. THE HANDS ARE QUICKER THAN THE EYES. 5. DO DUE DILIGENCE. NO CHECKS, THEN NO BALANCES. 6. FOOLS AND THEIR MONEY ARE SOON PARTED. 7. A DOLLAR SAVED IS A DOLLAR EARNED. 8. DON'T PUT ALL YOUR EGGS IN ONE BASKET. 9. THOU SHALT NOT STEAL. 10. SEEK NO EVIL,SPEAK NO EVIL,SMELL NO EVIL, HEAR NO EVIL;EVIL WINS. 11. PRIDE GOES BEFORE THE FALL. 12. THE LOVE OF MONEY IS THE ROOT OF ALL EVIL.

  • wgaf - Thursday, December 18, 2008, 2:59PM ET  Report Abuse

    • Overall: 2/5

    this is better than Lauras "Human Nature for the Polyannas", but do you think this blog is worth your time... I mean Really ? Really?

  • Matt Moynihan - Thursday, December 18, 2008, 1:41PM ET  Report Abuse

    • Overall: 3/5

    Isn't the whole financial and banking world a big ponzi scheme anyway? I mean, how many times can you repackage the same asset into an investment vehicle and sell it (ala mortgage backed securities).

  • Yahoo! Finance User - Thursday, December 18, 2008, 1:37AM ET  Report Abuse

    • Overall: 4/5

    What went wrong here?... Suppose Madoff had invested in credit swaps and joined the Wall St honor role, declaring multi-billion losses... He would have likely been too big to fail... would get bailout money... and could use it like Goldman Sachs to pay fat bonuses... He must have been too busy to read about government ez-money programs.... or preferred old-fashioned techniques to pay his bonus by robbing wealthy investors, rather than robbing the ever-poorer taxpayers...

  • WNY&#39;ER - Thursday, December 18, 2008, 12:42AM ET  Report Abuse

    • Overall: 3/5

    I agree with "no one cares"

  • Yahoo! Finance User - Wednesday, December 17, 2008, 10:03PM ET  Report Abuse

    • Overall: 3/5

    About time we realize free markets are not free .. rather a breeding ground for the greedy to exploit the honest.

  • Yahoo! Finance User - Wednesday, December 17, 2008, 12:12PM ET  Report Abuse

    • Overall: 2/5

    Look at the beauty of this situation, the thieves ripped off by a bigger thief. What goes arround comes arround.

  • Chris - Wednesday, December 17, 2008, 11:23AM ET  Report Abuse

    • Overall: 3/5

    His name should be Bernie Made-Off as in Made-Off with 50B of other people's money! A dirty, rotten, scoundrel of the highest degree!!

  • hocus - Wednesday, December 17, 2008, 10:40AM ET  Report Abuse

    • Overall: 3/5

    The story of the year is the ridiculous notion of bailing out millionaires. Privatizing gains and socializing losses, while cutting regulators and adopting a laissez-faire doctrine for the past 20 years has got us into this mess. Now that the vast majority of the country, middle class people, are being squeezed and the gap between the poor and wealthy is at its widest ever, we're reaping the seeds that these policies have sown. This is as much a Democrat problem as it is a Republican problem. Populism will dictate the policies of this government and the days of corporatism and welfare for the wealthy will be numbered. People underestimate the gravity of this recession and the regulatory and governemental changes it will bring. And after these changes, this country will be better for it.

  • Phil - Tuesday, December 16, 2008, 10:23PM ET  Report Abuse

    • Overall: 1/5

    Consume Mass Quantities -Beldar Conehead

  • Yahoo! Finance User - Tuesday, December 16, 2008, 7:57PM ET  Report Abuse

    • Overall: 4/5

    If what Blodgett reports is true, God Bless Bernie Madoff,investors that suspected him of insider trading should have been feeding info to the SEC, pointing fingers, anything but throwing money at a crooked scheme, this dark angel has brought the greedy cheating bastards what they deserved. Perfect Karma, Devine intervention at it's ironic best!!!

  • Yahoo! Finance User - Tuesday, December 16, 2008, 7:48PM ET  Report Abuse

    • Overall: 3/5

    We hit bottom yet? Where was the due diligence for the investors? No bailout for these folks - sorry - get in line for the leftovers after the lawyers are done. Bloget's quote is humorous. They knew the guy was dishonest and that's why they trusted him with their $$. Beautiful.

  • Yahoo! Finance User - Tuesday, December 16, 2008, 6:23PM ET  Report Abuse

    • Overall: 1/5

    We elect an African American president and you think THIS is the story of the year? Seriously? I mean c'mon..... Seriously?

  • NoOneCares - Tuesday, December 16, 2008, 5:49PM ET  Report Abuse

    • Overall: 2/5

    Take Madoff out to the alley and put two in his head. Do the same to the next douche bag that rips people off and keep doing it until they get the message.

  • Joe - Tuesday, December 16, 2008, 4:38PM ET  Report Abuse

    • Overall: 3/5

    Hamporkclever wrote"Alot of ponzi schemes are in jeopardy of collapse we need a ponzi scheme fund bail out" Don't we have plenty in the pipeline already

  • JimO - Tuesday, December 16, 2008, 3:05PM ET  Report Abuse

    • Overall: 3/5

    Bush should ask for a free trade deal with Colombia and a national right to work law in return for bailing out the Big 3.

  • D - Tuesday, December 16, 2008, 3:02PM ET  Report Abuse

    • Overall: 1/5

    The Financial Meltdown and the corruption and complicity in Wall St., banking, corporate America, and the government is THE story of the year. This is merely a comical footnote to the unfolding debacle. Keyword: corruption The corrupt have the balls to do what they do and bill it to the U.S. Citizens and this US GOV lets them do this. This country is one big disgrace. Who would of thought it would have come to this. VERY SAD!

  • David - Tuesday, December 16, 2008, 2:13PM ET  Report Abuse

    • Overall: 1/5

    The Financial Meltdown and the corruption and complicity in Wall St., banking, corporate America, and the government is THE story of the year. This is merely a comical footnote to the unfolding debacle.

  • Yahoo! Finance User - Tuesday, December 16, 2008, 2:08PM ET  Report Abuse

    • Overall: 3/5

    Hmm...another suit bilks America. Anyone notice the lack of outrage from DC as relates to ANY of the Wall Street problems?? And yet, the disdain that the same DC displays toward blue collar Americans. Say what you will about mechanics and line workers, NONE of them have ever bilked anyone out of their life savings...

  • wayne - Tuesday, December 16, 2008, 2:02PM ET  Report Abuse

    • Overall: 5/5

    Alot of ponzi schemes are in jeopardy of collapse we need a ponzi scheme fund bail out

  • cootiegiver - Tuesday, December 16, 2008, 1:41PM ET  Report Abuse

    • Overall: 3/5

    The most interesting part of the story is that everyone apparently suspected he was a crook, yet no one did anything about it.

  • rollie - Tuesday, December 16, 2008, 12:56PM ET  Report Abuse

    • Overall: 2/5

    All of you anti-government ranters probably voted for Reagan and the Bushes. You get the government you deserve! By the way, social security is not a Ponzi scheme and has been solvent ever since the Greenspan commisison in 1984 raised the deduction and the limits. Unfortunately, Reagan and Bush spent the social security surplus. In effect social security has been subsidizing the government and the net effect was to increase the tax burden down the income scale, making it more regressive. Meanwhile capital gains are taxed at lower levels than salary. How can this be justified? We do not tax money, we tax citizens based on their incomes. Any fairness should not consider how that income was generated. Thank you Alan Greenspan and the supply sider republicans. You have truly screwed the public.

  • caver - Tuesday, December 16, 2008, 11:56AM ET  Report Abuse

    • Overall: 1/5

    This is chump change. The CRIME OF ALL TIME is the AAA sucuritization of subprime(or worse) mortages. Just a sophisticated Ponzi scheme. The people involved in this must be put in jail for a very long time and their ill gotten gains confiscated and returned to their victims.

  • El Viejo - Tuesday, December 16, 2008, 11:19AM ET  Report Abuse

    • Overall: 1/5

    this guy is the new Penelope Trunk ....

  • Yahoo! Finance User - Tuesday, December 16, 2008, 11:12AM ET  Report Abuse

    • Overall: 2/5

    Who better to cover the biggest ponzi scheme in history than a writer who's articles consist of a collection of other peoples original thoughts. Can you say irony?

  • paul - Tuesday, December 16, 2008, 11:10AM ET  Report Abuse

    • Overall: 3/5

    discern2 is correct. This is another case where by following the money, much will be revealed. Madoff was a big contributor various Democrat party election campaigns. No doubt those that received contributions of his tainted money will want to return it to those that Madoff ripped off. It seems that the Republicans are having some competition by the Dems in the "Culture of Corruption" department.

  • Yahoo! Finance User - Tuesday, December 16, 2008, 11:07AM ET  Report Abuse

    • Overall: 3/5

    If Madoff is even worth a mention, then one should be reminded that our government routinely imposes multiple, multi-billion (or trillion?) ponzi schemes upon the citizens of the country: Social Security and Medicare/Medicaid are just two of many. And unlike Madoff in which someone voluntarily participates, in these we are all forced to participate against our will and under the threat of complete financial destruction, loss of home, or prison at the hands of your friendly neighborhood revenue agent. It is laughable that people get upset about Wall Street's excesses or greed, and then turn to government for assistance or retribution, when the ineptitude, excess and irresponsibility of government far exceeds that of ANYTHING in the private sector. Government is necessary and serves an important purpose, but the truth is that a government agency couldn't run a lemonade stand profitably except by extorting ("taxing") the community to support it. They have no business deciding which businesses to support. This recent fad of openly picking and choosing which companies will be propped up by the taxpayers, against the will of the same taxpayers, represents the end of an economic system that, along with other principles, built the greatest country in world history. Oh well. Everything crumbles eventually. But I digress. People in government routinely engage in actions that, if done by people in the private sector, would be illegal. If Madof ran a government agency, right now he'd be receiving congratulations for his effectiveness at acquiing and spending taxpayer funds. His mistake wasn't simply that he engaged in unethical business practices, but that he did so while part of the private sector.

  • turksf - Tuesday, December 16, 2008, 11:03AM ET  Report Abuse

    • Overall: 3/5

    I would say the money ended up in the jewish homeland banks. The foreign banks or investors certainly haven't got it.He knows where it is and could care less.

  • JamesR - Tuesday, December 16, 2008, 10:38AM ET  Report Abuse

    • Overall: 1/5

    I can't believe you would even suggest it's the story of the year. Yes, Madoff is a crook. But this is a year in which the entire global financial infrastructure is collapsing because of far bigger (and still un-accused) crooks. If you think Madoff is the biggest crook in the barrel, you're missing the forest for the trees.

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