Tuesday, December 23, 2008

A Friend Says "He Madoff With Their Money"

     Madoff is under house arrest, allegedly not allowed to leave his multi-million dollar Manhattan apartment. 

     What is a Ponzi scheme?  Ponzi found that you could buy a type of postage stamp in Italy, sell them in America, and because of the exchange rates, you made money.  This was entirely legal, a loophole in the system.  In finance, this is called arbitrage, finding a gap between prices and exploiting it. 

     Based on the amount of money people invested with him, Ponzi would have to transport millions of these stamps, but, regrettably for him, only 27,000 existed.  So, he started paying off investors with the new money rushing, and quite a lot of it ended up in his pocket.

     How come Madoff still has a seven million dollar apartment?  The idea behind not putting him behind bars, I've heard, is that he isn't a direct threat to anyone anymore.  Are you sure of that? Are you sure he doesn't have an offshore company, which he is now free to manage?  I think he'd be an absolute fool if he didn't have such a company.  Can he manage it freely, of course not, but if he had much foresight, he could be managing it indirectly.

     I think we need to expect more, and punish more freely, the people who have more, and wield more power.  The fine for jaywalking, for example, what sense does it make that a rich person pays the same $50 fine as a poor person?  Since it means nothing to a rich person to pay such a fine, they are basically given a license to violate any law whose penalty is a fine.  Speeding tickets?  Who cares if you are rich!

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