From Ponzi to Madoff : same causes, same effects ?

Résumé du document

Ponzi mechanism is a very simple pyramidal model that ensures unrealistically high and constant returns to its customers. How come? Early customers are paid off with the cash from new customers, attracted by the satisfaction of the old customers, and so forth until the chain collapses. Ponzi scheme has been used over and over, because it is simple, fits any growth dynamic context, and most of all works thanks to psychological factors. Indeed, it is all about trust and confidence, requiring charisma, reputation, and networks from the scammer, while investors will be naturally attracted because of this blind and senseless greediness that habits them. Madoff scandal relies on this model, and has become the most prominent financial fraud in history, because of the perfect combination of all factors. The purpose of this paper is to demonstrate that the entire world is driven by irrational behaviours that can only be explained by psychological dimensions of humanity. It will eventually lead to the demonstration that the society is doing the same things over and over, and expects different results.

Extraits

[...] They suffer most of the losses, however who would have (why should we) mercy for these They were actually deliberately integrated part of the system, and took advantage of it for years. Where are the $50 billions? They are gone for good, as these feeder funds and other financial institutions collapsed, and Madoff scheme was pyramidal. Furthermore, most of them were located in tax havens, making even more difficult to track financial flows. On the social and human side, the impact is rather indirect. There are those losers who “loss faces” getting into depression and even sometime further (e.g. [...]

[...] Mamou and A. Michel, 13/01/2009. Les élus américains demandent à ce que des têtes tombent à la SEC dans l'affaire Madoff by S. Cypel, 08/01/2009. Les victimes du scandale Madoff mettent en cause les cabinets d'audit by Y. Mamou, 10/02/2009. L'angoisse des clients floués fait la fortune des avocats by Y. Mamou, 23/01/2009. M. Obama va remodeler le "gendarme" de Wall Street by S. Cypel, 18/12/2009. [...]

[...] From Ponzi to Madoff : same causes, same effects ? Table of content Introduction 2 Ponzi scheme, the simpliest mechanism that fits any context 3 Ponzi : Originator of the simplest fraudulent scheme The Ponzi Scheme by Madoff 4 The reasons why Madoff scheme has been possible? 5 Simple or Complex, it is all about appearance 5 Trust and Confidence, it is all about Charisma and Reputation 6 Blind and senseless greed, Financial Investment is all about psychological rational 8 Aftermaths 9 The costs of the collapse 9 The lessons to be learned from 11 CONCLUSION 12 BIBLIOGRAPHY 13 Introduction Ponzi mechanism is a very simple pyramidal model that ensures unrealistic high and constant returns to its customers. [...]

[...] A qui profite l'escroquerie ? by O. Boulet, 12/21/2008 Long Island Business News: The New Ponzi Scheme: Work Hard, Don't Screw People by J. Kominicki ,Feb. 2008 : the Year that SEC slept while Madoff stole by A. D'Amato, Jan Madoff's réputation helps hime to avoid close scrutiny March On Wall Street Calls for New Rules After Madoff by D. Mitchell, onwallstreet.com, Feb 2009. New York Times List of the victim: http://dealbook.blogs.nytimes.com/2008/12/14/a-list-those-exposed-to-losses- from-madoff/; accessed on 17/04/2009 Radio Canada: Infography of the chronology and the madoff model. [...]

[...] the JEHT foundation or the Israelite Insurance company Halel), and small investors have been directly or indirectly impacted. The direct and most impacted victims are not the small investors, they potentially represent 10% of the losses, (estimated around millions in France) most of the time without knowing it because of the lack of transparency of some mechanism blending investments within a single product (e.g. SICAV). In fact, most of the hedge funds involved are fed by wealthy customers and professional investors; and conduct their activities under countries' legislation they are located in. [...]