By now everyone has heard of how Bernie Madoff made off with billions of investor's funds in what is being described as the largest Ponzi scheme in history. Losses could amount to upwards of $50 billion. Meanwhile, the fund closure is affecting the full gamut of investors, from movie producers and baseball club owners to Jewish charities.
We have little to add to the bevy of news and commentary on the implosion of the Madoff fund other than to echo the thoughts of Rolfe Winkler:
So I ask again: Do you know where your money is? You may get an account statement from your bank each month, and I'm sure the number at the bottom looks correct to you. But, and this is the crucial question underneath the financial crisis worldwide, is your money really there?
What if, like Bernie Madoff's Ponzi hedge fund, your bank got too many withdrawal requests all at once? What if, like Bernie Madoff, your bank didn't actually have the cash on hand to meet a larger than average request for funds from depositors? If that happened, and the Fed wasn't in a rescuing mood, your bank would fail instantly…just like Bernie Madoff.
But of course this has already happened. Bear Stearns, Lehman, Merrill, WaMu, Wachovia and, I would argue, CItigroup as well. In effect, they all received massive redemption requests that they were unable to fund. They've all lost so much money on bad investments and crappy loans, while keeping so little cash in reserve to protect themselves against those losses, that they all went bust long before Bernie Madoff.
Our banking system is a Ponzi scheme similar to Bernie Madoff's. The former just happens to be legal. Keep that in mind the next time you look at your bank statement.
The Madoff implosion should not be considered a hedge fund as his investment Strategy was 1. Not Hedged and 2. Neither Long nor Short Equities. To label him a hedge fund is wrong and it cast a dark shadow on the industry as a whole. The Hedge component of this implosion is inside the FoF's that invested in Madoff. Permalink
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Important: This fund is on our list of hedge funds that have "imploded" (see also ailing lenders). However, please note that "imploded" is a somewhat subjective. The "imploded" list contains hedge funds (or other unregulated and autonomous speculative investment funds) which have gone through some sort of permanent adverse change. This is a somewhat subjective call, and does not necessarily mean total shutdown or bankruptcy. It can also mean steep and rapid mark-downs in net asset value; or abnormal "bail-out" by corporate parents or peers in order to avoid write-downs and provide liquidity. The funds are of any type and sector.