Open Madoff thread

I’ve been traveling and meeting up a storm, so I’m a little late to the Bernard Madoff hedge-fund-as-Pomzi-scheme story.  I have three disturbing thoughts: As disgusted as I am by this, I’m also impressed that anyone was able to sustain a Ponzi scheme for more than a decade.  These schemes usually blow up in less ...

By , a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and co-host of the Space the Nation podcast.

I've been traveling and meeting up a storm, so I'm a little late to the Bernard Madoff hedge-fund-as-Pomzi-scheme story.  I have three disturbing thoughts: As disgusted as I am by this, I'm also impressed that anyone was able to sustain a Ponzi scheme for more than a decade.  These schemes usually blow up in less than a year, so this was quite extraordinary (though the Wikipedia entry discusses some Ponzi schemes that lasted up to 20 years).  I'm beginning to wonder if this is Lehman II, in that the number of counterparties that are imperiled by this crash wind up exacerbating and already strained financial system.  Trust is an underestimated public good that allows markets to function with a minimum of fuss -- and I think it's safe to say that U.S. financial markets are burning through this trust at an accelerating rate [UPDATE:  Anne Applebaum makes this point more eloquently than I in today's Washington Post].  Comment away!

I’ve been traveling and meeting up a storm, so I’m a little late to the Bernard Madoff hedge-fund-as-Pomzi-scheme story.  I have three disturbing thoughts:

  1. As disgusted as I am by this, I’m also impressed that anyone was able to sustain a Ponzi scheme for more than a decade.  These schemes usually blow up in less than a year, so this was quite extraordinary (though the Wikipedia entry discusses some Ponzi schemes that lasted up to 20 years). 
  2. I’m beginning to wonder if this is Lehman II, in that the number of counterparties that are imperiled by this crash wind up exacerbating and already strained financial system. 
  3. Trust is an underestimated public good that allows markets to function with a minimum of fuss — and I think it’s safe to say that U.S. financial markets are burning through this trust at an accelerating rate [UPDATE:  Anne Applebaum makes this point more eloquently than I in today’s Washington Post]. 

Comment away!

Daniel W. Drezner is a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and co-host of the Space the Nation podcast. Twitter: @dandrezner

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