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madoff's scheme worked precisely because people did do due dilligence. they shouldn't. they should have just asked him how he got the returns, and rejected hi
by logicallee 12y ago
madoff's scheme worked precisely because people did do due dilligence.
they shouldn't. they should have just asked him how he got the returns, and rejected his offer when he didn't have a compelling answer.
EDIT: someone asked why the paragraphs aren't contradictory. The thing about due dilligence is that to me it sounds like looking into past investors and other things, doing reference checks. The thing about ponzi schemes is that until they crash, they produce lots of high-quality references. In the case of Madoff, people who have received reasonable returns from him for 20 years. He also managed charities' money, as well as contributed civicly.
None of these stuff matters, though, because despite the stellar references (which is what makes ponzi schemes work) there is no underlying way to actually generate returns.
- maxerickson 12y agoNow explain how those paragraphs aren't contradictory. Your second paragraph is certainly a reasonable step in a comprehensive appraisal. edit: Due diligence means understanding the thing you are investing in. For something like investing millions of dollars with Madoff, that includes more than asking his other customers what their returns were.
- Nursie 12y agoThat's not enough due diligence then. Further I guess I didn't make things clear - Joe Average (hell, let's say it's me) sees investments, particularly rich-people investments, as a separate class of transaction from his day to day use of money. There is risk involved. You have to take care of what you're doing. The idea that someone might just run off with his bank account, either through operator fraud or through hacking of a service or his own machine, and there not being much anyone can do about it, is pretty terrifying.