Bernard Madoff's "Giant Ponzi Scheme"

The Bernard Madoff saga continues to dominate the financial news headline. This 70-year old fellow has been running a "giant Ponzi scheme" (in his own words) for the past two decades. Loss to the investors could exceed $50B, largest financial fraud in history. Where were the auditors? Where was the SEC?

Ponzi scheme is a term named after Charles Ponzi, a financial con artist. But even Ponzi was not able to deceive people for so long. A Ponzi scheme is like robbing Peter to pay Paul. Investors are promised high return. So they gave the money to the fraudster. The fraudster pay the earlier investors with money gotten from the later investors. As long as money keeps pouring in, the scheme can continue. But if new investors do not come in, the music stops.

Madoff has aroused a lot of suspicion over the years. Today's Wall Street Journal profiled a guy by the name of Harry Markopolos who had been prodding the SEC to investigate Madoff for years. SEC basically ignored him.

Over the past several years, government regulatory agencies have become too cozy with the businesses they regulate. President Bush wants the government agencies to "serve" the industry, and be "business friendly". Republican ideology is "let business self regulate". What you end up with is "Robber Barons" style capitalism. Large business hire lobbyists to pass government policies that favor the big businesses and create barriers for competition. Small businesses and consumers are left in the dark.

I doubt there will be any significant change even under Obama. There are just too many vested interests out there. It would be enormously hard to overcome them. The American public is stupid , and can be easily misled by these big interest groups who control the media and the propaganda machines. If Obama wants to change all that, he will be slandered and demonized, and then rendered completely ineffective. I think Obama understands that. If he really wants to do something good for America, he should make small incremental changes. Gradualism is the key. Don't step on too many toes. I hope he is smart enough. He does not want to end up like JFK, right?