Word: ponzis
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Dates: during 2000-2009
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Bernard Madoff's $50 billion Ponzi scheme continues to rock the financial world. But most hedge funds actually engage in similar - albeit legal - practices in the short run. In the past, these practices helped inflate their gains as well as hedge-fund managers' salaries and bonuses, but recently they helped bring about the failure of many major hedge funds...
...Ponzi scheme - as anyone smart enough to engineer one knows - is a plan that is uniquely without an exit strategy. It requires a constant infusion of new investors to pay off a growing body of existing ones, and ultimately it becomes impossible to find enough suckers. When that happens, the scam collapses. Sure, you could always flee the country before the roof caves in, but many scammers don't and Madoff famously didn't. The reason lies in the personality - or, more accurately, the personality disorder - that drives them to such frauds in the first place...
...bipolar or manic disorders may be involved as well, particularly since they are characterized by grandiosity and impulsiveness, with little regard for consequences. But grandiosity and impulsiveness can also be self-limiting, and lead to smaller-bore crimes that don't require the patience and plotting of a Ponzi scheme. Madoff, says Galietta, "was very planful...
...course, a non-violent willingness to hurt other people for your own enrichment describes every mortgage bundler or junk-bond scammer who's ever forged a balance sheet. What distinguishes the Ponzi artist is the sheer scale of the scam...
...same exponential multiplication of funds that makes a Ponzi scheme impossible to sustain also means that, at first, it makes you very rich, very fast. "The financial payoff is so much larger," says Minnesota-based forensic psychologist Steven Norton. "The money comes in, the power comes in and that pushes them." What's more, says Galieti, the pyramid structure of a Ponzi scam means that there can be only one person at the pinnacle - an appealing idea for a narcissist who would just as soon not work invisible frauds inside a big investment bank...