Bernard L. Madoff Investment Securities - Ponzi fund

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.