Re: Madoff $50 billion


"PeterSaxton" <peter@xxxxxxxxxxxxxxxxx> wrote in message
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On 21 Dec, 19:31, "nebulous" <p...@xxxxxxxx> wrote:
"PeterSaxton" <pe...@xxxxxxxxxxxxxxxxx> wrote in message

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On 21 Dec, 17:39, "nebulous" <p...@xxxxxxxx> wrote:
"PeterSaxton" <pe...@xxxxxxxxxxxxxxxxx> wrote in message

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How can the Madoff money be lost? Assets must be somewhere. He
couldn't possibly have "consumed" that amount. Bill Gates couldn't
manage it.

Do you know how a Ponzi scheme works?

Yes

That was sort of a rhetorical question. I've seen your posts before and
was
pretty sure you would know - but I dived in anyway!





http://en.wikipedia.org/wiki/Ponzi_scheme

If that is what has happened then he will have paid most of it out to
previous investors. It's a pyramid, with the bottom and biggest layer
(or
more) not getting anything because it is all gone.

Of course there willl be numerous reports and even more numerous
rumours
before we get anywhere near the truth about what happened.

Neb

Lets look at a very simple example.

Investor A invests $1m

Madoff consumes spends $1m

Investor B invests $2m and the money is used to pay back $1m capital
and $1m "profits" to investor A

Investor B asks for $2m capital and $1m profits but there isn't any.

This means:

Madoff gained $1m which he consumed

Investor A received $1m "profits"

Investor B lost $2m

Compare this with what is supposed to have happened:

Madoff consumed $x

Investors who got money out received $y "profits"

Investors who didn't get money out lost $z

z = 50bn

x + y = z

This means that $50bn has been shared between Madoff and investors who
got out

Are the investors who got $y "profits" entitled to keep them?

In all likelihood it will be much more complicated than that - going back
many years. What you haven't factored in are trading gains/ losses and
also
to some extent whether Madoff was skimming money off. Some reports seem
to
be suggesting he profited very little. He also seems to have given a lot
to
charity.

$y would also include a percentage of returned capital as well as profit.

It may also take a fair bit of work to determine the final value of Z.

Finding his records and working out what did happen may be a very big
task.
So in your example above it may be almost impossible to work out how much
of
$y legitimately belongs to the people who got it. You then have the not
inconsiderable task of how you remove it from them. Sending a letter
politely requesting its return may not be effective. The whole thing
could
land up costing hundreds of millions in legal fees.

My view is we will never know what happened - but it will quietly fade
away
because that will be what many people prefer.

Neb

y is only the "profits" because the capital put in by the investors
who got their money out nets off with the capital returned.

If the loss is $50bn then the capital put in and returned isn't part
of the equation.

I don't really get that.

you said:-

Investors who didn't get money out lost $z

I think you need to clarify that definition. If you mean the amount of
capital people paid in over the 40 years or so it was running I would
suggest it was a lot less than $50bn.

If you mean the book value of the shares, which is my understanding of what
$50 bn represents, then z = x + y does not work.

Lets look at A. He submitted his share of Z, $10,000 ten years ago. With
profits his shares had a book value of $19,000. He also drew out $7,000
four years ago. So how does he now stand in your book? Are you chasing him
for $7k back? Or did he lose $19k? Or does his $10k less $7k mean he has
lost $3k?

Neb




.

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