After watching the PBS show about Bernie Madoff’s Ponzi scheme my conclusion is that Bernie Madoff was simply serving just desserts to his “clients”.
The people who invested with Madoff were all:
* very rich
* aware Madoff was doing something illegal
* happy to go along as long as they thought they were profiting
They assumed that since Madoff was a big market-maker, he was “front running“, or trading stock for himself and his clients using non-public information about what others were willing to bid or accept. Front running is illegal because it corrupts the stock market by making stock prices and stock brokers untrustworthy.
It must have been quite a surprise to find the crime was not front running, but just a simple Ponzi scheme! Ha!
The psychology of the Madoff scheme was just like the Nigerian scam letters in that the mark agrees to play along with something illegal. This keeps the mark quiet. The Nigerian scammers ask you to participate in foreign corruption. Bernie asked his victims to participate in American corruption. Either way, the mark is reluctant to talk because he himself was trying to do something illegal at public expense.
The scary part about the Madoff affair is how corrupt the SEC was proven to be. Not only did they fail to detect Madoff, but even when Harry Markopolous shoved compelling evidence in their faces they ignored it. Bernie seems to have had lots of help from inside the SEC, which means you can most definitely not trust the US government to regulate financial markets fairly.
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