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Shadowfire
December 13, 2008 2:57 AM
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50 billion dollars.

When do you decide \"wow, this is a ton of money!\" and disappear?

Because for me, it would have been 49 billion dollars earlier. That's \"buy your own island\" money.

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7 replies
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Anonymous
December 13, 2008 11:17 PM
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$50 Billion? $50 Billion?

All of a sudden $15 Billion for the auto bailout seems like a deal!

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wildhalcyon
December 13, 2008 2:24 PM
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@Shadowfire: Actually, depending on the size of the private island, they can be had for much, much less than $1 billion. [www.privateislandsonline.com]

Really, a good island runs you about $2-10M US. 250 foot yachts will run you about $200M! A luxurious mansion in the hollywood hills will run you $3-10M. So, they're priced quite low. But then you have to worry about compsognathi running around terrorizing your daughter.

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rockasocky
December 14, 2008 7:01 AM
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@wildhalcyon: Freakin compsognathasaurs (sp?)...... It is far more terrifying to be eaten by hundreds of tiny bites than a single large T-rex bite.

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CumaeanSibyl
December 13, 2008 7:27 PM
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@wildhalcyon: Hey, I call that a bonus security force.

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moore850
December 13, 2008 12:11 PM
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@Shadowfire: He probably had to pay most or all of that to old investors to make the gains look legitimate... I'd be surprised if he made out with 50 million personally from this scheme. What is shocking most of all is that a ponzi scheme would even work for a minute as a giant hedge fund.

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AlexDitto
December 13, 2008 4:39 AM
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@metsarethe...: I'd settle for five bucks and a pack of Cheese-Its.

My standards for success are quite low.

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Parapraxis
December 15, 2008 4:42 PM
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@Trai_Dep:

fuck dude, I'd trade it in for a Cheese Nip, and all the horrible anti-asian sentiment that includes.

(I'm asian, btw)

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bohemian
December 13, 2008 3:08 AM
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The government has got to start seizing assets of the ownership when these kinds of things happen. They will seize everything some stupid schmuck owns if he was dealing drugs. Defraud billions of investors hiding behind the supposed credibility of Wall Street and your assets are still yours.

This revelation that someone with that kind of reputation was doing this and how un-regulated things are now is extremely scary. Who knows how many more of these scams are out there.

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Mary Marsala with Fries
December 15, 2008 3:27 PM
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@bohemian: \"The government has got to start seizing assets of the ownership when these kinds of things happen.\"

A-EFFING-MEN; I'm so glad to hear someone else say it! How much money would we have for health care (or whatever) if every white-collar asshole convicted of lying to the tune of X Million had to hand that X Million (at least) over? And what the HELL is the supposed reason they get to keep it?

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Trick
December 14, 2008 2:36 AM
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@bohemian:

Don't worry, I here this criminal may spend as much as 5 years behind bars and he will learn his lesson when he has to pay a $17,000,000 fine!

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SacraBos
December 13, 2008 2:30 PM
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@bohemian: Very true, after all, the first letter of RICO stands for \"Racketeering\". The shoe fits. But the Fed won't do it, since after all, the whole of Wall Street is basically a Ponzi-ish gambling scheme, too... You'd have to go after all of them: AIG, Bear Stearns, Goldman Sachs, WaMu, Chase, BoA, Lehyman Brothers, ...

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Hands
December 13, 2008 1:56 PM
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@bohemian: Drug dealers don't make a lot of contributions to political parties. High profile embezzlers do.

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ogunther
December 13, 2008 5:27 PM
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@Hands:

Oh I think you'd be surprised; I'm sure drug dealers that deal in the $50 Billion dollar arena probably contribute more than you think.

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rolla
December 13, 2008 6:11 AM
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@bohemian: yeah, but drugs kill people. In this situation, you only lose your money, not your life...

But i understand what your point...the penalties must be more severe.

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Inglix_the_Mad
December 13, 2008 3:31 PM
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@rolla:

Umm, you tell some schmuck he lost everything. You've just committed a violent crime in my eyes. You've threatened them just as much as a punk robbing a robbing a liquor store threatens the clerk. Except you're usually doing it on a scale that defies comparison to the punk with the gun. You don't think they're comparable? How many of these people will commit suicide, fall into drug patterns, have to seek psychiatric treatment, suffer divorces, et al. from this idiot's actions.

White collar crime is still crime and we're foolish to act like there is less effect or a \"lesser\" violence to it. ALL crime is violent. ALL crime is an imposition of oneself above another by the perpetrator. ALL prisons should be 23 hour a day lock down, maximum scurity prisons. No mollycoddling. No differences. The only compassion in the justice system SHOULD be the jury.

The current situation is as ridiculous as the one between men and women \"offenders\" that get caught popping some teenager. Woman does it? Slap on the wrist (especially if she's got looks) Guy does it? He's a farking pedophile burn him, BURN HIM! They're the same crime, but treatment is unequal.

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snoop-blog
December 13, 2008 3:21 PM
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@rolla: Yeah because nobody has ever been killed over a fuck ton of money before.

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Problogue
December 13, 2008 3:32 PM
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@snoop-blog: I know people who've killed over twenty bucks before.

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bohemian
December 13, 2008 3:17 AM
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There is a comment on the Business Week article that mentioned that the fed gave Blackrock a chunk of the bail out even after Blackrock was frozen because they didn't have enough to pay out investors. If you google Blackrock and bail out it pulls up a bunch of links how Blackrock and Pimco are getting some sort of preference in the bail out. We had one of our 401k funds forcibly changed to Blackrock when the managers axed another fund. I looked at Blackrock at that point and moved the money right away.

Pimco is pretty shady too. It seems like the fed is purposely doing things that won't end well.

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ADismalScience
December 15, 2008 3:56 PM
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@bohemian:


BlackRock was viewed as a potential asset manager of troubled mortgage assets in the course of the TARP bailout. They've got no solvency issues - your information sounds badly misinterpreted from source. Larry Fink is a genius, and largely diversified out of subprime in 2005. He gave a good interview about how \"liquefying our balance sheets is our generational project.\" Couldn't agree more.


You should be so lucky to have BLK assets available to you in your 401(k)!

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TechnoDestructo
December 13, 2008 4:46 AM
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Is there some reason that crimes like this are not capital?

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4 replies
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terrabyte
December 17, 2008 3:21 AM
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@TechnoDestructo:
He'll do time. Maybe six, even eight months.

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Mary Marsala with Fries
December 15, 2008 3:29 PM
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@TechnoDestructo: Because without the illusion that enough money can somehow buy immortality, our version of capitalism would collapse. ;)

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Brontide
December 14, 2008 4:34 PM
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@TechnoDestructo: At least in the US, the SCOTUS has held that you can not use capital punishment for a crime where someone did not die. I do agree with the sentiment though as one fraud like this has a much wider and, to some extent, socially destructive effect.

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P_Smith
December 13, 2008 8:49 AM
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@TechnoDestructo: Let's use a white rope to make a white collar.

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Sonia Is Real
December 13, 2008 4:49 AM
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Oh, I thought ya'll were talking about Chris Pirillo's wife...

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downwithmonstercable
December 13, 2008 5:48 AM
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At least he wasn't a Rockefeller.

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johnnya2
December 13, 2008 5:56 AM
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Who says crime doesnt pay? Michael Milken is being considered for a pardon and even without it, is still a multi millionaire. Yet a drug dealer is sentenced far harsher

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P_Smith
December 13, 2008 8:48 AM
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A few billion here, a few billion there...soon, you're talking about real money.


They're saying the NASDIQhead ran a Ponzi scheme? The whole of Wall Street is a Ponzi scheme, dependent upon continuous growth. It has to end sometime.

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MikeH30
December 15, 2008 9:15 AM
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@P_Smith:
no actually it's not, the heart of the stock market is that you own part of a real tangible company and you are betting that the company will continue to bring in revenue and grow

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Trai_Dep
December 13, 2008 9:28 AM
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The scary thing is that even legitimate, although battered, hedge funds could quickly collapse because of that schmuck Madoff.
Igniting cries of \"save the poor, sophisticated investors and needy sovereign fund managers!\"

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1 replies
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TCTH
December 15, 2008 2:15 AM
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@Trai_Dep: If every hedge fund in the country went belly up and never revived, the country would be better off.

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lore
December 13, 2008 10:41 AM
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Hmm, I smell a bailout coming up!

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P41
December 13, 2008 11:51 AM
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The story I found exceptionally interesting was the one where people were putting money in the fund *because* they thought it was crooked. The returns were too good to be true, (too high, too consistent) but they thought it was insider trading, not ponzi.

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usa_gatekeeper
December 13, 2008 5:14 PM
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@P41: Actually, if they went into it heads up knowing what they were doing (\"something's shady but I'm not gonna ask\") and if they timed their exit well, they could get in and out without being hurt.

But timing an exit on something like this is strictly luck, unless you have a way of knowing something.

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TCTH
December 13, 2008 4:23 PM
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@P41: Isn't that waht the sacammers count most on? The whole mortgage/subprime credit debacle is was based in large part on those people who want something for nothing and thnk they've found a sure way to get it.

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TCTH
December 13, 2008 4:19 PM
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@P41: The greed and lack of ethics on the part of some investors is a major factor in any investment scam. The whole mortgage/subprime credit debacle was fueled by people wanting something for nothing and thinking they'd found a foolproof way to get it.

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stinerman
December 13, 2008 2:04 PM
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@P41:

What's this you say? People doing unethical things to make a quick buck? You've got to be kidding!

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tinmanx
December 13, 2008 2:24 PM
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I don't get it, where did all the money go? I understand that he had to pay old investors and whatever, but what the investors put in should still be there.

Is this missing $50 billion the made up \"gains\" from the fund? Or was it paid out to some fat cats who took all their money out?

Either way, it's $50 BILLION! I don't think I can even spend that much in my entire life even if I wanted to!

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m4ximusprim3
December 15, 2008 7:03 PM
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@tinmanx: Imagine that he's an apple farmer.

He got people to give him apple seeds to start his farm. he tells them that for every 10 seeds they give him, he'll add one to their account at the end of the month.

He then uses the seeds to plant apple trees, grow apples, and use the seeds to pay everyone back.

One year, he has a bad year and lots of his apple trees die. He doesn't have new seeds to cover his \"one a month\" promise. Instead, he takes some of the original seeds and uses them to cover his debts.

The problem is that now he has less seeds than he says, so he can't grow as many trees. Unless he gets a record crop, he has to keep pulling out more and more seeds to pay people back. It's a vicious cycle, and in the end he just doesn't have any seeds to pay anyone with.

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m4ximusprim3
December 15, 2008 7:05 PM
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@m4ximusprim3: One of the things about Ponzi schemes is that, unlike a pyramid, the operators don't usually go in with intentions of malfesance.

Usually what happens is that they have a \"bad crop\" year, and try to cover it up by paying out of the principal. This puts them in a hole, and they have to make more agressive investments to dig their way out. If these don't pay off, they're deeper than when they started. Eventually, the whole thing collapses.

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JustThatGuy3
December 13, 2008 9:09 PM
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@tinmanx:


Exactly - it's not like he has $50BN sitting around - if he did, it wouldn't be a Ponzi scheme. The vast majority of the $ have been already paid out to investors who thought they were getting the returns promised to them. He gave up because too many investors wanted to pull their money out, which made it impossible for him to continue.

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TCTH
December 13, 2008 4:16 PM
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I'm just waiting for the light to shine on Eddie Lampert and the whole Kmart/Sears scheme. I suppose it will come right after he spends the last of the Cash reserves he got with the sears acquisition on stock buybacks in the new company he formed.

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bohemian
December 13, 2008 4:31 PM
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Seriously, what happens if it ends up that this isn't the only one and that there are a bunch of these kinds of funds that are just elaborate ponzis? If you have a huge swath of the rich, businesses and municipalities losing their shirt and some average investors that lose all of their retirement, then what?

Now combine that with the big three all dying at the same time. They take all of their vendors and employees with them. The two situations combined could collapse a big percentage of jobs and leave just about everyone with no retirement money left.

We have been told for the last 25 years that your 401k and IRA are your retirement. They wanted to turn social security into a hybrid 401k. Now it might be a situation were almost everyone has lost all or most of their retirement. At the same time boomers are getting ready to retire.

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Mary Marsala with Fries
December 15, 2008 3:31 PM
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@bohemian: Unfortunately, a lot of us have parents who are boomers, so \"P on 'em\" doesn't cut it, and the situation you describe could indeed be scary.

My plan? Get a good permaculture farm going on the most sustainable, energy-efficient property I can put together, and plan to have most of my family there before the decade is out. Wish me luck!

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Keter
December 13, 2008 8:59 PM
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@bohemian: I will BET on this not being the only one. I will bet on MOST of them being pure snake oil.

As for the poor boomers - p on 'em. I was born in the last year of the boom and they actively blocked me my whole life. Over the years, I saw that they were following a lemming mentality that was not sustainable, so even after I finally got a break, I didn't join in on the financial shenanigans.

So here I am with no debts other than my mortgage and 100% liquid in assets and haven't lost a penny. I know how to live on my income, and live well on it. I counted on NEVER being able to retire, and have structured my life to accommodate this as much as possible. Now that the playing field is leveling and they are playing MY game, I finally have the advantage I was denied in my youth. I will capitalize on it.

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Jure Vicious
December 13, 2008 4:57 PM
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@AlexDitto: I do aim a bit higher. Ten bucks, a case of Fat Tire Beer and a box of Triskets. If not Triskets I'd settle for Goldfish.

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Marshfield
December 13, 2008 8:57 PM
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to P Smith: Technically, Wall Street is not a Ponzi scheme. Wall street is a speculative bubble, in that in a bear market, each investor hopes that the next investor will pay more than they did and then the first will make a profit. As long as people think the stock will rise, everyone makes money -- until the bubble bursts and the stock falls. But each investor goes in knowing (or should be knowing) that the bursting bubble is out there.

Ponzi schemes, on the other hand, investors believe their funds are actually invested in something and receive statements from time to time indicating that their funds are indeed there. The statements are fraudulent, and only when the investors ask for their money back is the scheme detected.

Not quite the same thing.

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kwsventures
December 13, 2008 9:31 PM
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Just another great reason to continually get educated about investments. Open a discount brokerage account and handle your own money. Nobody cares about your money more than you. Despite what the \"so-called\" experts want you to believe, investing is not hard.

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shadydentist
December 13, 2008 9:52 PM
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Hey ben, just remember that \"Everything that sucks is dying\" doesn't necessarily mean that everything dying sucks.

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Invective
December 13, 2008 10:51 PM
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Oh it's worse than just this. If the government guts budgets of the governing body, or finds ways to redirect budgeted funds for something else, then points their finger at those governing bodies and says, \"See! They don't work!\" This is what we get left with.
It's insane too. We get banks betting off the books, we get oil and power companies operating in false markets behind closed doors. We get \"We'll buy your *old* gold jewelry\", effectively stealing from the poor and the aged. We get \"Right to Work\" states that really means consumers have *NO* rights and no recourse. (Read the Appeal, it's the truth.)
Now we have utility companies, including brand name wireless companies, as well as others turning to badgering existing customers for late payments that don't exist, using a new technique of 'billing into the future' so they can scam monies into their failing bank accounts. We effectively get the death of a fair system of capitalism, all for the cheap price of PAC money for the career politician.
The worst yet to come...

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MikeWas
December 14, 2008 3:48 AM
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\"...everything that sucks is dying?\"

On the contrary. Congress is still going strong...and is far more powerful now than it was three months ago.

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humphrmi
December 14, 2008 4:06 AM
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@MikeWas: Yes. Soon the Chancellor will overtake the Senate, and the Jedi will be but a memory. It is all going according to plan.

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crackle
December 15, 2008 4:55 AM
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Ponzi and Pyramid schemes are completely different scams. Why does he keep mixing them up?

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m4ximusprim3
December 15, 2008 7:07 PM
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@crackle: This confuses me as well. I'm hoping he'll justify his position at some point.

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revmatty
December 15, 2008 3:12 PM
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Y'all are aware that one of the core principles of the modern GOP is 'bankrupt the government so it can't function any more', right? That's what these bailouts are really about. The fact that they're funneling all the money to their biggest campaign contributors is certainly no coincidence either. Sure the equally corrupt Dems are all in for the bailout as well, but they're just trying to grab some of the action, bankrupting the government isn't a core part of their ideology.

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ADismalScience
December 15, 2008 3:19 PM
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Ben, not to shit all over your prophecy of doom, but Q1 redemption notices to most quarterly-redeeming and annually-redeeming Hedge Funds were due months ago. Q4 is already almost done. Lots of funds have already engaged gates, holdbacks, lockups, and all manner of liquidity management strategies to prevent their capital bases from leaving nothing but the leverage. This is beyond the defensive, cash-based strategies that most Equity Long/Short products were pushed into over the past year. It's a little late to presage a redemption crisis or a flight to cash; where have you been? Do you think the Dow went down 3000 points in a few months and the VIX hit 80 because scared individual investors sold their penny stocks?


This Madoff guy was unbelievable, sure, but a prophecy of widespread corruption in the private wealth management industry seems based on nothing more than personal prejudice. If there were hot-air derivatives on the other side of most of your ruminations I'd buy them. Which is to say nothing of the damage an irrational media-driven redemption spree would have on the valuations of the remaining stocks with investors. Then again, you are running a tabloid!


But by all means, instruct people to go buy worthless index products. That's worked great for the last 10 years, and it's worked great historically in secular bear markets. Kids these days don't even remember the Nifty Fifty. I'm going to start calling working until you die the \"Magazine Retirement.\"

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JustThatGuy3
December 15, 2008 7:15 PM
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@ADismalScience:


People should be buying index funds - not because they're certain to do much better than the market, but because they're certain not to do a lot _worse_.

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ADismalScience
December 15, 2008 8:11 PM
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@JustThatGuy3:


Wrong. I couldn't disagree more.


Index funds are promulgated by EMH disciples in the advisory business, who lost their clients a lot of money in the recent downturn. EMH is a lie, you -can- beat the market, and some investors are vastly better than others. Actively managed products are badly beating indexes, including hedge funds. This is because low-liquidity, thinly-traded markets like those typical of a secular bear market require uncommon analytical skills and limiting your exposure to the good names.


If you think the rising tide lifting all boats is the future of the markets in a credit-constrained environment, well, you probably own index products.

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JustThatGuy3
December 16, 2008 8:22 PM
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@ADismalScience:


OK, here's the thing. Some investors can beat the market. How does the typical individual investor CHOOSE those investors, though? Basically, how does an individual investor, with typical individual investor information, choose which retail-offered mutual fund to purchase?


There's a big difference in saying \"some investors can beat the market,\" and saying that a typical retail investor should _try_ to beat the market. The evidence is overwhelming that the typical individual investor is highly likely to underperfom the market by trying to beat it.

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JustThatGuy3
December 16, 2008 8:22 PM
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@JustThatGuy3:


Check out Dave Swensen's \"Unconventional Success\" - a very worthwhile read.

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ADismalScience
December 15, 2008 3:22 PM
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@ADismalScience:


Small correction: Q4 should be \"Q2\" in the first paragraph.

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darkryd
December 15, 2008 5:14 PM
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Yes! Let the cockroaches scurry and run for their lives.

Time to clean house on Wall Street.

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SJRNWT
December 15, 2008 6:03 PM
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IT WAS $50 MILLION, NOT $50 BILLION!!!

Just heard it on the news this morning, PLEASE change this Lifehacker. lol I'm not trying to defend the guy, but just trying to correct a major error.

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Jeff Berger
December 16, 2008 1:06 AM
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I am so enjoying this. I live on the Upper West Side of New York City and I know these people. They sit in their mansions and play in their country clubs and call Republicans the party of the rich. They think that shopping at Zabars and having season tickets to Lincoln Center make you better than those who shop at Piggly Wiggly and have season tickets at NASCAR. Better still, they call George Bush a moron and an idiot and then they they turn around and show how smart they are by putting all their money into the same basket and not asking any questions about how their money is being invested. HAH.... The Chickens Have Come Home to Roost!!!

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Instigator
December 16, 2008 2:18 AM
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The SEC is taking this very seriously...

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