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    The whole Madoff money dilemma.

    CBC Radio had an interview with one of the people who were left broke after Madoff's Ponzi scheme collapsed. She said that, beyond their (not paid off) house, they're ten years from retirement and now have nothing. I think she said they lost around $1 million.

    So here's the crux of my question: some of Madoff's investors are flat broke due to his scam. Others have taken a large monetary hit, but it's small as a percentage of their wealth. It's by no means broken them.

    If you were given the job of redistributing whatever funds they eventually recover from Madoff (say it's ten cents on the dollar), would you refund it fairly and equitably based on amount invested and lost? Or, if given the option, would you distribute more to those who'd lost more as a percentage of their estate (woman above) and nothing to, say, Tom Cruise or Donald Trump (who'll be fine, regardless).

    #2
    The whole Madoff money dilemma.

    I wouldn't give it to anybody who invested more than the average man's yearly income in a greedy grab for yet more cash. You lost $1million? Fuck you for ever having it and being stupid enough to gamble it to try and get more...

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      #3
      The whole Madoff money dilemma.

      WOM, it's a bizarre hypothetical scenario you paint there. The short answer on my part is that I would distribute the money strictly in accordance with applicable bankruptcy/insolvency and investor compensation law, whatever the result of that would be. That would uphold the principle of the rule of law and legal certainty, which is of fundamental importance for all investors in assessing, and accordingly in pricing, investment risk, which in turn enables businessess to raise necessary investment capital at an affordable cost of funds, benefiting the economy as a whole, including the "ordinary worker" dear to indysleaze's heart.

      One thing which the law does not require, and which moral sympathies don't much inspire either, is giving generous compensation to idiots who put all their life savings "eggs" in one basket because some co-religionist smoothie down the exclusive country club had a hot reputation.

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        #4
        The whole Madoff money dilemma.

        WOM, it's a bizarre hypothetical scenario you paint there.
        Yes, that was the point. I was hoping to test the OTF waters with a scenario that would seem more caring, although less 'fair' as it's typically defined. The scenario proposed is the way I'd love to be able to handle it, to be honest. I'd like to see the small investor who's lost 90-100% of their wealth compensated fully before the big investor who's lost, say 5%.

        I'm also, now, fascinated by the idea that trusting one's investment counsel is just another manifestation of greed.

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          #5
          The whole Madoff money dilemma.

          But evidently it's easier to test the OTF waters on matters such as bacon sandwiches than it is the unequal distribution of wealth.

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            #6
            The whole Madoff money dilemma.

            WOM, I think you would find that such a system would create all kinds of perverse incentives for investors to concentrate their savings in a single place (which is exactly what you don't want from a systemic perspective), as well as creating a lot of conflict over where one draws the line between "big" and "small".

            Your aim is addressed to a limited extent (at least in the US) by insurance programs such as those run by the FDIC and SPIC that protect every investor in insured accounts up to a certain dollar amount (though it is far from clear that everyone who lost money "with Madoff" has an SIPC claim, largely due to the multi-level nature of the fraud).

            An under-appreciated aspect of the whole scandal is that the applicable laws that Maulever cites actually provide some scope for the trustee to "claw back" funds from investors who had withdrawn some of their capital before the thing collapsed so as to have more money to distribute to those who didn't do so. Such claims have already been filed in the Bayou Fund collapse, and have a lot of people who thought they were "lucky to get out early" concerned here.

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              #7
              The whole Madoff money dilemma.

              The rather obvious answer, WOM, is to leave fairness to the state pension scheme and compensating creditors to the bankruptcy court.

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                #8
                The whole Madoff money dilemma.

                too bad for these madoff investors that the fund wasn't registered in ireland - our government would have nationalised it by now.

                i think lord mauleverer is right. some people forgot these investments involved risk. that doesn't mean they should now be insulated from the consequences of their mistake. i feel sorry for that woman, but what she did was totally reckless.

                there was a woman on the radio here the other day demanding compensation from the government for her now-worthless shareholding in anglo-irish bank. she said that she had bought a large tranche of shares at 4 euros, and had then snapped more up when they dipped below 1 euro. "you should buy shares when they're low" she explained, "and the government said everything was alright with the bank". when did you buy these shares, the host asked. "september".

                i mean, fucking hell.

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                  #9
                  The whole Madoff money dilemma.

                  Sorry, I might not have been clear. I'm not asking for a legal opinion on what will happen, or what checks and balances are in place in these type of scenarios.

                  It was a moral/ethical question based on a hypothetical scenario. If you had the task of redistributing any recovered monies, and were given the power to do it 'as you see fit', would you follow the letter of the law as it stands now; or would you use a unique measure of compassion/fairness/impact/outcome and redistribute it otherwise?

                  Comment


                    #10
                    The whole Madoff money dilemma.

                    WOM, it's a massively underspecified question. Is this a one-off? Are all bankruptcies/frauds resolved in this arbitrary manner? What sort of social welfare net is there? Is the worst off investor a dick?

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                      #11
                      The whole Madoff money dilemma.

                      I'll play ball. Intuitively, yes, the person fucked for the highest proportion of their wealth should be compensated more - but that leads to perverse incentives in the way ursus describes.

                      An option might be to give the same priority to people according to their net worth - but perhaps that incentivizes the less well-off to invest riskily which is, again, not really desirable.

                      Perhaps a progressive option with low moral hazard would be to prioritise reimbursement of the smallest shareholdings - that would disproportionately favour the less well-off, but would also create incentives to diversify holdings, spreading one's risk more widely, and to keep highly exposed assets small.

                      Comment


                        #12
                        The whole Madoff money dilemma.

                        So answer the massively underspecified question. You're not being marked on this.

                        But, for the sake of argument, it's a one-off, because the New York Supreme Court has ruled (unanimously) that this isn't actually an investment case, as no monies were invested in anything that falls under the purview of the FDIC or any recognized investor protection legislation. It's a theft case.

                        There's the standard US social safety net. ie, dog food & cardboard box.

                        The investors, dicks or not, will need to prove the amount they gave to Madoff and their banker / lawyer will need to attest to the condition and quantity of the rest of their financial wherewithal.

                        Comment


                          #13
                          The whole Madoff money dilemma.

                          So answer the massively underspecified question. You're not being marked on this.
                          Sure, but I can't answer the question meaningfully if certain things aren't specified. It would be like tossing a coin. It makes a huge difference whether there are consequences beyond the investors.

                          Given the way you've elaborated on the question, I'd probably have each investor come in and argue for their share of the funds. If they convince me they deserve more than the others, they'd get it. Totally arbitrary, but that's the situation you've set up.

                          If you ask me how I think these situations should be resolved in general, I've already given you my answer. Have a strong and fair safety net but an impartial bankruptcy law with pro-rata compensation (among equally ranked creditors).

                          Comment


                            #14
                            The whole Madoff money dilemma.

                            Two things, GY - firstly, when they come in and make their cases you're presumably going to be weighing them against each other on some basis. The question is, what would be a fair basis from which to proceed?

                            Secondly, the numbers are presumably too high for you to weigh all the competing claims in your head at once. So one-on-one subjective meetings with one individual aren't going to work. What do you do then? This elaborates the scenario slightly, but only to the point of replicating the question above.

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                              #15
                              The whole Madoff money dilemma.

                              The moral of the story is, never trust anyone with too much of your money, especially somebody whose name is pronounced "Made Off" as in "He made off with all of the loot." I mean, FFS, it could only be clearer if his name was Rob U. Blind.

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                                #16
                                The whole Madoff money dilemma.

                                My solution would involve bringing in WE on maths, and FF on Excel and devise a (fairly elaborate) point system. Imagine two sliding scales. One is 'Dollars Lost'. The other is 'Percentage of Assets Lost'. Whoever scores at the top of each gets a 1.00 score. Whoever scores at the bottom of each gets a 0.01 score. Everyone else falls somewhere in between. The total dollar figure recovered - let's say it's $500 million - is then divided by the sum total of those numbers.

                                Now, I'm not exactly sure how it works, but that would be the broad strokes. It would be a mathematical formula, rather than an arbitrary 'tug at my heartstrings' kind of thing. However, it would hopefully help those who 'had little and lost it all' first, and those who 'have piles and lost a little' last. In fact, I might be inclined to immediately exclude anyone with a 0.10 score or lower just to make the process go faster.

                                If you get what I mean.

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                                  #17
                                  The whole Madoff money dilemma.

                                  Two things, GY - firstly, when they come in and make their cases you're presumably going to be weighing them against each other on some basis. The question is, what would be a fair basis from which to proceed?
                                  Who said anything about fair? I'll be weighing them against each other on the basis of my preferences. I can't really say how it will pan out, because I don't know what they're going to argue. But if some super rich investor tells me she's going to use any funds to start a deep sea research lab, while someone whose life savings have been wiped out tells me he'll give the funds to the RNC, well, it's a good day for manufacturers of robot submarines.

                                  Secondly, the numbers are presumably too high for you to weigh all the competing claims in your head at once.
                                  Which is why God invented paper.

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                                    #18
                                    The whole Madoff money dilemma.

                                    I mean, FFS, it could only be clearer if his name was Rob U. Blind.
                                    Is that yours? If so, kudos.

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                                      #19
                                      The whole Madoff money dilemma.

                                      It is. Thanks.

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                                        #20
                                        The whole Madoff money dilemma.

                                        I heard that Rob U. Blind is represented by the firm Dewey, Cheatem, and Howe.

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                                          #21
                                          The whole Madoff money dilemma.

                                          This reminds me a little of the 9/11 compensation fund--I remember reading that if the person who died had life insurance, the insurance payout was factored into what the family received from the government fund, i.e., it was deducted. These families were then outraged that they received less from the fund, considering themselves penalized for having planned ahead.

                                          Don't know what the answer would be, myself.

                                          Comment


                                            #22
                                            The whole Madoff money dilemma.

                                            Yes, I had that exact thing in mind as I was noodling this in the car. I remembered that they'd appointed a guy - a retired judge or something - to handle the disbursement of the donations. An arduous job, to be sure, but I remember him being roundly praised for the way he handled it. I hadn't heard the life insurance thing.

                                            This sort of dilemma seems to crop up whenever there's a payout scenario. If a plane crashes, the family of a 35-year father-of-two breadwinner feels they're entitled to a greater settlement than the two grown children of an 86 year old woman. What's the value of his life versus hers? Equal? Equal...but differently? Fuck, what a morass of issues.

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                                              #23
                                              The whole Madoff money dilemma.

                                              150 years.

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                                                #24
                                                The whole Madoff money dilemma.

                                                And not a day too long.

                                                Speaking of greedy cunts, one of the victims [as shown on MSNBC.com today] is outraged because the government compensation fund is only reimbursing him for what he put into the Madoff fund since 1993, and not what the last [completely bogus] Madoff Investments statement said his nestegg was now worth. Fucking idiot.

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                                                  #25
                                                  The whole Madoff money dilemma.

                                                  He'll only serve about 5-10 years before dying, but who cares.

                                                  At least the Yanks are serious about this stuff. Over here, the cunt would have strolled off with a massive golden handshake and a few directorships of semi-state companies.

                                                  Hopefully his wife and offspring will now be remorselessly asset-stripped by the authorities, if not given prison sentences of their own. The idea that they were oblivious to Daddy's scam is laughable.

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