Madoff’s Victims Are Close to Getting Their $19B Back

1. The article shares a bunch of anecdotes about individual investors receiving their money back, which is surely true, but not necessarily representative of what’s happening overall. 2. Unfortunately it probably wasn’t priced strictly by “odds of recovery” (and also I suspect there was information asymmetry there) but also based on liquidity needs. Large institutions can wait for cash. Retail investors can’t necessarily. Yes, yes time value of money blah blah. Still seems asymmetric.

If anything, it seems to incentivize spending money quickly, because only those with something left were in a position to have it clawed back. It isnt clear from the article, but i dont think claw-backs forced people without anything left to say, take out a loan to pay back what was spent.

Generally, if you receive stolen goods, there are two possibilities: you knew they were stolen (read: a prosecutor can convince a jury you knew), in which case you lose the goods and get prosecuted. Or you didn't know they were stolen (read: prosecutors can't convince a jury you knew), in which case you merely lose the goods.

This may seem unfair from the perspective of the unknowing recipient of stolen goods, but letting them keep the goods is equally unfair from the perspective of the original victim, and would feel like the law giving its blessing to the theft (it would also encourage schemes to knowingly but with plausible deniability receive stolen goods). So there's no solution that is guaranteed to appear fair from all perspectives. But the law generally sides with returning the goods to the original owner, effectively undoing the original theft.

In this case, the "investors" who are being targeted by the suits are also getting to keep their own original capital; they're just being required to hand back the ill-gotten gains. So the remedy is effectively undoing the Ponzi scheme.

Ultimately as a potential investor this would have been easy to spot as at least suspect. The first couple of due diligence questions to ask are about custody arrangements and their auditor. Understanding that if you are not an accredited investor you are not allowed to invest in hedge funds also makes it obvious that a fund willing to take your money may be acting fraudulently.

Finally it did result in people losing their retirement funds, for some people absolutely everything.

You are basically asking for the government to insure that nothing bad ever happens and accept unlimited liability if it ever does.

Also there is a special rule for cash. Stolen cash is not treated this way, so if a bank is robbed and has all the serial numbers, they can't take the money from you if you happen to get one of the bills in a transaction.

I agree with your first line, but wanted to nitpick the legal statement.

That's not the law on passage of title. Things are a whole lot more complicated than that.

The rules are jurisdiction specific and civilian and common law systems deal with this issue differently. Historical common law treats property as a series of tiered claims, not as a singular entitlement.

Sometimes there are brightline rules regarding registration requirements. Sometimes there are multiple sale good faith caveats. Sometimes there are confounding evidence requirements. etc.

Generally speaking, you never get to keep the item if you knew or ought to have known it was fishy. Beyond that, things vary.

No.

I don’t know if any of the 10 investments i made in 2018 are Ponzi schemes. I have to rely on regulations and hope companies like Lending Club are legit, I don’t pour over their paper work or hiring private investigators to figure out how they do their business. It would be silly to confiscate my profits because Lending Club turned out to be shady. Me hiring a fund to produce returns on investment is no different than hiring a painter to paint a room.

update

all good points in replies. i stand corrected on my understanding of this issue :)

Unless the entire funding structure including the currency and all parties in the transaction are completely anonymous and it is impossible to trace the funds to any one person, but then this raises further problems.

[0] Both via difficulty adjustments every 2 weeks (mostly increasing) and rewards halving every 4 years

[1] To counteract the deflationary nature of new coin generation

[2] https://en.wikipedia.org/wiki/Reasonable_person

[3] i.e. buying into the "platform" in order to "invest" in tokens for subschemes issued with the "platform" (no one advertised that the subschemes would eventually have to dump their "shares" of the platform afterwards)

If some of the larger ICOS are found to have been in contravention of the law, it's possible some sort of unwinding via lawsuit could occur.

What some ICOs have done, and what many more may be found to have done in future, is sell illegal unregistered securities.

Compounding to that the fact that these people weren't even benefited by the whole scam. They lost their houses, their savings, everything. If they knew what was at stake they might bear some responsibility, but they didn't.

You can say people bear responsibility and they do but we rely on our professionals to use their greater education, and their expertise to manage systemic risk by making informed choices and creating systems that manage not create risk.

No degree or number of idiot customers could have created the collapse because banks wherein the bank intends to hold the loan isn't insentivized to give out loans wherein it has a poor chance of being paid. Foreclosure is unlikely to yield but a fraction of the face value of the debt. In order to crash and burn you need an entire mechanism whereby banks can originate bad loans, get paid, and sell them off en mass as securities by outright lying about the nature of the loans being sold while securing this whole endeavor with insurance that can't possibly afford to pay for the collapse you are engineering. Then you need to pump the gas on the stupid until you run the economy into a ditch.

The economy collapsed because a bunch of dumb people bought houses they couldn't afford is a myth that conservatives and the financial industry is retconning in hopes that we are too stupid and uninformed to read. There have always been idiots willing to sign on the dotted line for dumb financial products. There are a million idiots now. We expect the adults in the room not to sell them the same way we don't expect the invisible hand of the market to keep people from eating melamine in their food.

They can lobby the government to change laws. They hire PHDs in the thousands develop attractive, tricky products. They hire million dollar marketing firms to influence us to buy.

On the other side you have busy people trying to get by in a confusing world. They dont hire anyone to help them, but they trust the rules that allowed their parents to get by (how credit is allocated). Many of them are essentially innumerate, especially when compared to a quant at a bank or even an engineer.

We’re talking about taking candy from a baby here. Is it the baby’s fault it can't defend itself?

We dont live in a fantasy of every human having 100% self reliance where every person can handle every tricky situation thrown against them. We need laws and moral standards- and when those are revoked it is not enough to understand the consequences as “the victim’s fault”

https://www.vice.com/en_au/article/yvxajb/what-happened-when...

Individuals have a responsibility to act realistically. But the ultimate responsibility for due diligence lies with lenders. And when banks commit fraud on an industrial scale, and get away with it, it stops being a problem of individual misbehaviour and becomes a problem of institutionalised corporate corruption.

If tommorow the housing market had a massive collapse in value people would still get the house promised and would need to keep paying to avoid repossession - if they could pay say $2.5k to get a comparable house and move they could voluntarily default and their liability would be limited. Given such extremes and shaky risk curves many if not most banks would ageee to a middle ground if they thought the crash would endure. One can argue ethics of all parties but there is no inherent fraud here.

Continuing to sell shares beyond 100% of a gold mine and using sales proceeds to make prior customers think they are getting returns is a Ponzi Scheme. If people stop buying it collapses and when the dust settles a 20% share is only a share of 1% rationalized to true percentage. That is fraud.

Nevertheless, the vast majority of people purchasing their first homes in Canada and the US do not have six months of buffer. No bank has ever denied my application for a mortgage for not having six months of mortgage and tax payments in a savings account. My government backs certain kinds of loans for first-time buyers, and it does not require this buffer.

So while I agree with what you're saying in a logical sense, in a practical social sense, you are asking the vast majority of people who buy their first home to pass on buying a home, in the face of all social evidence that seems to contradict your advice.

It's good advice of a sort, but recognize that this is not accepted wisdom. It's highly conservative and contrarian. Which is smart, but if you want people to embrace it, you'll need to wrap it in a lot of justification and other mechanisms for explaining why they should zig while all around them, people are zagging.

(FWIW, My very first real estate purchase was a loft condo where I actually had cash for the entire thing, but took out a small mortgage to kick-start my credit rating. It was paid off in two years. From that point on, I have not had six months buffer in cash, but I have had more than the nose-bleed minimums in equity, and that's another kind of risk management. So I do empathize with your message, but I suggest it needs a lot of selling to get people to adopt it in the face of a trillion-dollar industry convincing people otherwise.)

The overwhelming majority of first time home buyers do not have enough cash on hand for a down payment and a 6mo long emergency fund. It's just not possible for most first time home buyers to amass that kind of cash in any reasonable timeline while paying for the existing roof over their heads. You save for a down-payment, blow your savings on the down-payment and closing costs then rebuild your savings over the next year or two while putting up with the increased risk as a result of less savings during that time. People buying their 2nd through Nth home can generally roll the money made on the sale of their own home into the down payment and closing costs of the home they're buying without obliterating their savings. Sure, it would be nice if everyone were wealthy enough to have a down payment and emergency fund but so long as renting is the financial equivalent of lighting your money on fire people will stretch themselves as thin as they need to in order to buy.

If you think this way, then you'll logically conclude that anyone who genuinely loves his family must be a decent guy who won't screw you over, and that's a very dangerous mistake.

The usual criticism is that it's harder to compare areas than lengths, so one should avoid mapping data to areas.

(One little edit to your comment, I think you meant quadratically instead of exponentially.)