4 ms·

Besides being off-the-books and under-the-radar, how was Madoff's operation different than that? Genuinely curious.

• cm2187 10y ago
  A bank is solvent, Madoff wasn't. Madoff didn't have any asset, the cash you would have invested with him had been used to pay off other investors. A bank has assets, the money you lent the bank (through your deposit) is invested in a mortgage, backed by a property. You will ultimately get your money back. but it is a timing issue (and therefore liquidity), not a solvency issue.
  • WillPostForFood 10y ago
    It's a liquidity issue if the bank invested in mortgages (usually), but it can be a solvency issue if they are invested in debt (sovereign or corporate) that can be defaulted on.
• Spooky23 10y ago
  Totally different. A bank generates a return on it's deposits. Madoff just paid a dividend or phony appreciation to investors based on money deposited by new investors -- except for the money he stole it was a closed system with no return generated. He also concentrated his efforts on courting a relatively insular community (religious Jews) via trusted community figures to avoid awkward questions. Thats usually a sign of a scam -- banks don't send your priest/rabbi/community leader to hawk CDs. But there are many hustles (Ponzi schemes, pyramid schemes, and various savings clubs) that are common in ethnic and religious communitiesand apread via word of mouth.