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veil of ignorance No. I don’t know if any of the 10 investments i made in 2018 are Ponzi schemes. I have to rely on regulations and hope companies like Lendin

veil of ignorance No. I don’t know if any of the 10 investments i made in 2018 are Ponzi schemes. I have to rely on regulations and hope companies like Lending Club are legit, I don’t pour over their paper work or hiring private investigators to figure out how they do their business. It would be silly to confiscate my profits because Lending Club turned out to be shady. Me hiring a fund to produce returns on investment is no different than hiring a painter to paint a room. update all good points in replies. i stand corrected on my understanding of this issue :)

mikeash 8y ago
There’s a major difference in that it’s not possible to unpaint a room, but it’s trivial to undo a money transfer. A painter can’t be returned to his previous state, but an investor can.
- kbutler 8y ago
  Some Madoff-touched money is going to be invested at a profit, some at a loss, some spent, some beneficiaries will be dead with assets left to heirs, etc. Unwinding /anything/ from a decade ago is non-trivial. It's even possible (likely?) that some direct Madoff investors were also customers of the funds that have money being clawed back.
  - shaki-dora 8y ago
    > that some Madoff investors.... They all are. That’s the point. This is taking Money from those who got out of Madoff’s fund soon enough, and giving to those later investors who paid for the imaginary profits.
    - kbutler 8y ago
      >> that some direct Madoff investors were also customers of the funds > that some Madoff investors. You omitted the word "direct" (why?) Person X invests in a fund Y that invests with Madoff and gets out soon enough. Person X then invests those gains "directly" with Madoff. Person X loses money with Madoff. How much does Person X deserve (or owe)? Another example would be Person A who invests $N in the scheme. Takes out $10N principal & profits (as a test that the scheme is authentic). Invests that $10N and even more in the scheme, loses it. How much do you claw back for (or from?) Person A?
      - IfOnlyYouKnew 8y ago
        Madoff's funds weren't exactly exchange-traded, generic investment vehicles. As mentioned in the article, part of the money is clawed back from "feeder funds". Those were sales or regulatory vehicles that passed 100% of their capital on to Madoff. As to your examples: Person X is irrelevant. You claw back the money from fund Y. Fund Y may, in turn, have arrangements with person X requiring them to return any money, but that's actually tangential. (this is like 1st-semester law again, yeay!) Person A owes <total sum taken out> - <total sum put in> (this is like 10th grade math again. yeay!)
        jacobr1 8y ago
        Sure, that simplifies things and is how the law treats it. But there is still complexity. You have some cases where a single true owner invested via a family office, via different trusts, via feeder funds all at different times with different amounts taken out and different profit and losses. Sometime the profits from one venue are compensation to another. In these scenarios, you can treat them all as separate cases, or you can pull them together and negotiate an umbrella settlement. My understanding is that this has been done when possible, including with some hedge-funds who have purchased a variety of positions and even feeder funds themselves.
        kbutler 8y ago
        So Person X makes off as a pure winner in the clawback (doesn't lose Fund Y profits, gets "made whole" of direct losses in clawback) Not "fair" but "legal". Yay! In real-world experience, rather than 10th-grade story problems, the devil is in the details. Dates are important (you're eligible for recovery of losses from date range, you're liable for recovery from other date range), and Person A is likely to be vulnerable to clawback of earlier profits, even if reinvested and later lost. The profits from the scheme are separate transactions from the later losses in the same scheme. In this case, your simple math would be more fair, but probably not how the legal system would work. Yay! You can see examples of this in capital gains taxes on people who made and lost a lot in cryptocurrency boom/bust cycles. Arbiters may have a lot of discretion in evaluating claims in these big cases, but I'd rather have the law on my side than relying on the discretion of an arbiter.
CJefferson 8y ago
Do you think if you buy a stolen good without knowing it is stolen you should get to keep it? If not, where do we draw the line?
- gdfasfklshg4 8y ago
  If I buy the goods in a big box retailer and the goods turn out to be stolen I assume that the retailer will make the original owner good.
  - detaro 8y ago
    The retailer is in jail and all their assets seized and redistributed already.
- leetcrew 8y ago
  I think it honestly depends. to make an admittedly weird example: suppose you go to a dealership to buy a used car. you decide on one that's going for close to the KBB value, do all the paperwork, and drive the car off the lot. a year later you find out the dealership owner is a shady guy and some of the cars he sold were somehow stolen. the business no longer exists and the guy is nowhere to be found. should you really be out $10k and your ride to work? the case for returning the property in this situation is more practical than moral. that is, it's probably just easier to just find the guy with the car and take it than to extract money from a deadbeat car salesman who probably doesn't have it anymore. I find these sorts of legal things distasteful, but I guess I can see why we have them. in an ideal world, I think there should be some sort of safe harbor protection for people who make a reasonable effort in good faith to check that a transaction is bona fide.
  - jacobr1 8y ago
    This is why a lender for a house purchase requires title insurance. The insurance kicks in to make you whole if it turns out the house was not the prior owner's to sell. I don't think the same things exists with cars, but requiring it in some way seems like a way to handle the problem in general. In state-level social fund equivalent. This happens with insurance too. One of the costs baked into premiums are state mandated contributions to common insurance solvency pools. If a carrier goes out of business, the insured is still covered by the common pool that is used to fund claims (that have now be transferred to a solvent firm or trustee).
whack 8y ago
You misunderstand what "veil of ignorance" is referring to. https://en.wikipedia.org/wiki/Veil_of_ignorance https://en.wikipedia.org/wiki/Veil_of_ignorance > "It would be silly to confiscate my profits because Lending Club turned out to be shady" It would be even sillier for you to lose literally everything because Lending Club turned out to be shady.
bionsystem 8y ago
> all good points in replies. i stand corrected on my understanding of this issue :) Madoff's fund wasn't regulated, too. If you buy a house or stocks, you are into a regulated market. Edit : by "regulated" I probably meant public. Not sure if the english term is correct ; one may want to check Shiller's course about hedge funds on youtube. My point being, those funds are only accessible to the very rich who will never spend their principal.
JumpCrisscross 8y ago
> I have to rely on regulations and hope companies like Lending Club are legit, I don’t pour over their paper work You...should probably do more diligence if you’re investing your money in Lending Club. Treasuries and CDS are the thoughtless investment option.

mikeash 8y ago

There’s a major difference in that it’s not possible to unpaint a room, but it’s trivial to undo a money transfer. A painter can’t be returned to his previous state, but an investor can.

kbutler 8y ago
Some Madoff-touched money is going to be invested at a profit, some at a loss, some spent, some beneficiaries will be dead with assets left to heirs, etc. Unwinding /anything/ from a decade ago is non-trivial. It's even possible (likely?) that some direct Madoff investors were also customers of the funds that have money being clawed back.
- shaki-dora 8y ago
  > that some Madoff investors.... They all are. That’s the point. This is taking Money from those who got out of Madoff’s fund soon enough, and giving to those later investors who paid for the imaginary profits.
  - kbutler 8y ago
    >> that some direct Madoff investors were also customers of the funds > that some Madoff investors. You omitted the word "direct" (why?) Person X invests in a fund Y that invests with Madoff and gets out soon enough. Person X then invests those gains "directly" with Madoff. Person X loses money with Madoff. How much does Person X deserve (or owe)? Another example would be Person A who invests $N in the scheme. Takes out $10N principal & profits (as a test that the scheme is authentic). Invests that $10N and even more in the scheme, loses it. How much do you claw back for (or from?) Person A?
    - IfOnlyYouKnew 8y ago
      Madoff's funds weren't exactly exchange-traded, generic investment vehicles. As mentioned in the article, part of the money is clawed back from "feeder funds". Those were sales or regulatory vehicles that passed 100% of their capital on to Madoff. As to your examples: Person X is irrelevant. You claw back the money from fund Y. Fund Y may, in turn, have arrangements with person X requiring them to return any money, but that's actually tangential. (this is like 1st-semester law again, yeay!) Person A owes <total sum taken out> - <total sum put in> (this is like 10th grade math again. yeay!)
      - jacobr1 8y ago
        Sure, that simplifies things and is how the law treats it. But there is still complexity. You have some cases where a single true owner invested via a family office, via different trusts, via feeder funds all at different times with different amounts taken out and different profit and losses. Sometime the profits from one venue are compensation to another. In these scenarios, you can treat them all as separate cases, or you can pull them together and negotiate an umbrella settlement. My understanding is that this has been done when possible, including with some hedge-funds who have purchased a variety of positions and even feeder funds themselves.
      - kbutler 8y ago
        So Person X makes off as a pure winner in the clawback (doesn't lose Fund Y profits, gets "made whole" of direct losses in clawback) Not "fair" but "legal". Yay! In real-world experience, rather than 10th-grade story problems, the devil is in the details. Dates are important (you're eligible for recovery of losses from date range, you're liable for recovery from other date range), and Person A is likely to be vulnerable to clawback of earlier profits, even if reinvested and later lost. The profits from the scheme are separate transactions from the later losses in the same scheme. In this case, your simple math would be more fair, but probably not how the legal system would work. Yay! You can see examples of this in capital gains taxes on people who made and lost a lot in cryptocurrency boom/bust cycles. Arbiters may have a lot of discretion in evaluating claims in these big cases, but I'd rather have the law on my side than relying on the discretion of an arbiter.

CJefferson 8y ago

Do you think if you buy a stolen good without knowing it is stolen you should get to keep it? If not, where do we draw the line?

gdfasfklshg4 8y ago
If I buy the goods in a big box retailer and the goods turn out to be stolen I assume that the retailer will make the original owner good.
- detaro 8y ago
  The retailer is in jail and all their assets seized and redistributed already.
leetcrew 8y ago
I think it honestly depends. to make an admittedly weird example: suppose you go to a dealership to buy a used car. you decide on one that's going for close to the KBB value, do all the paperwork, and drive the car off the lot. a year later you find out the dealership owner is a shady guy and some of the cars he sold were somehow stolen. the business no longer exists and the guy is nowhere to be found. should you really be out $10k and your ride to work? the case for returning the property in this situation is more practical than moral. that is, it's probably just easier to just find the guy with the car and take it than to extract money from a deadbeat car salesman who probably doesn't have it anymore. I find these sorts of legal things distasteful, but I guess I can see why we have them. in an ideal world, I think there should be some sort of safe harbor protection for people who make a reasonable effort in good faith to check that a transaction is bona fide.
- jacobr1 8y ago
  This is why a lender for a house purchase requires title insurance. The insurance kicks in to make you whole if it turns out the house was not the prior owner's to sell. I don't think the same things exists with cars, but requiring it in some way seems like a way to handle the problem in general. In state-level social fund equivalent. This happens with insurance too. One of the costs baked into premiums are state mandated contributions to common insurance solvency pools. If a carrier goes out of business, the insured is still covered by the common pool that is used to fund claims (that have now be transferred to a solvent firm or trustee).

whack 8y ago

You misunderstand what "veil of ignorance" is referring to. https://en.wikipedia.org/wiki/Veil_of_ignorance https://en.wikipedia.org/wiki/Veil_of_ignorance > "It would be silly to confiscate my profits because Lending Club turned out to be shady" It would be even sillier for you to lose literally everything because Lending Club turned out to be shady.

bionsystem 8y ago

> all good points in replies. i stand corrected on my understanding of this issue :) Madoff's fund wasn't regulated, too. If you buy a house or stocks, you are into a regulated market. Edit : by "regulated" I probably meant public. Not sure if the english term is correct ; one may want to check Shiller's course about hedge funds on youtube. My point being, those funds are only accessible to the very rich who will never spend their principal.

JumpCrisscross 8y ago

> I have to rely on regulations and hope companies like Lending Club are legit, I don’t pour over their paper work You...should probably do more diligence if you’re investing your money in Lending Club. Treasuries and CDS are the thoughtless investment option.