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Madoff pulls a Ponzi

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KAI RYSSDAL: It’s a wonder we trust anybody on Wall Street given the wringing we’re going through. But this next story really takes the cake.

Bernard Madoff used to be the chairman of NASDAQ — as in THE Nasdaq. He’s also, it turns out, one of the greatest liars and cheats Wall Street’s ever seen. The FBI says Madoff’s confessed to running a giant Ponzi scheme. Giant enough to have lost investors more than $50 billion.

Marketplace’s Jeremy Hobson has more from New York.

: It’s a classic Ponzi scheme. A dishonest broker sets up an elaborate house of cards and basically robs Peter to pay Paul.

MITCH ZUCKOFF: You take the money from new investors to pay old investors.

Mitch Zuckoff is the author of the book “Ponzi Scheme: The True Story of a Financial Legend.” When it comes to Bernard Madoff’s heist, he says:

ZUCKOFF: He out-Ponzi’d Ponzi.

Madoff kept sending out statements showing an unusually healthy annual return. And investors told their country club friends to join in.

Zuckoff says Madoff got away with it for some of the same reasons Ponzi did.

ZUCKOFF: If he’s anything like the original, Charles Ponzi was enormously charismatic, absolutely conveyed confidence and comfort. And he just looked as though he was the guy to trust and behaved in a way that made people want to give him their money.

If the allegations prove true, Attorney Ted Eppenstein will probably end up representing people who got scammed by Madoff.

TED EPPENSTEIN: Even already this morning before I left the house I got a call.

Eppenstein has dealt with cases like this before — but never one this big. He says Ponzi schemes typically fall apart in recessions because there aren’t enough new investors to pay off the old ones. But he says it doesn’t seem to discourage the schemers.

EPPENSTEIN: People who are bright enough to develop the schemes believe that they’re above it all and that they can just keep going and going and going — sort of like that rabbit who gets wound up.

Maybe 70-year-old Madoff didn’t figure the biggest financial crisis of his life was on its way. He himself reportedly expects to go to jail. Whether investors will get any of their money back is the $50 billion question.

In New York, I’m Jeremy Hobson for Marketplace.

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