Ponzi 101

CNN and MSNBC are studded with question marks this morning. Every commentator wants to know: How could it happen? How could Bernie Madoff fool so many sophisticated investors so well?

You don't need a parade of experts to guess at why experts were fooled. All you need do is remember the origin of one word. All con games are confidence games. Nobody generated greater confidence than former NASDAQ Chairman Bernie Madoff. Who would guess that he would be willing to screw over all of his friends and family? Because that was what he required to make this work. After all, how often does such a fraud happen on such a big scale with such a pillar, nay keystone, of the community putting so much of his personal life at risk? Never.

And when everyone believed in him, all he did was take in a million dollars from A and then a million from B. With two million dollars in hand, he gave A double digit returns, and probably even let him go home with his $1.1M+. If the music stopped there, B was the chump. But along came C with his million (maybe A came back in for some more), and so on until the reported $50B figure was reached.

When the facts are in, we may find out that it didn't start out as a fraud. Surely he will argue that he meant to catch up some day, but had a mental breakdown along the way.

Most confidence men have to work much harder than he. Because Madoff was so well established, this particular Ponzi dance was actually no more complicated to run than applying the techniques of the Happy Days character Fonzi. If you had a mental breakdown and thought you were the Fonzi of Ponzi, you would have a simple two-stroke handbook to follow.

What Happens If They Praise You
"Mr. Madoff, you're a genius."
"Heyyyyy."
Analysis: A fine combination of modesty with a dose of, "Did you ever expect anything less?"

What Happens If They Question You
"Mr. Madoff, I don't see how this makes any sense."
"Whoaaaaa."
Analysis: "Do you know who are talking to? Do you wanna throw down? Do you really think you are any match for me?"

End of discussion.