Perhaps Wall St. Really Is Just One Big Ponzi Scheme

from the finding-that-last-sucker dept

While we’ve always been pretty skeptical of the way Wall St. worked, at least it seemed like there was some semblance of reality on which it was based — even if much of that foundation was a rickety house of cards. Yet, with the revelations coming out about Bernard Madoff’s potentially $50 billion fraud, it makes you start to wonder if anything on Wall Street is real. Madoff admitted yesterday that his entire firm was “one big lie” and “basically, a giant Ponzi scheme.” It appears that rather than paying investors back based on profits they earned, he was pulling money out of the principal from other investors — and now there’s basically nothing left. Not surprisingly, the firm’s website touted Madoff’s “high ethical standards.” What’s even more astounding is that no one happened to notice this was happening until he ‘fessed up. At a time when one of the biggest things missing in the market is confidence, this is not going to help. Yes, there is some reality backing at least some of Wall Street, but people are going to have an increasingly difficult time figuring out what is real, and that’s not going to encourage much investment. Conceptually, what Wall St. does is provide a very useful service for putting money to use where it’s best needed as investment capital. In reality, it looks like there was an awful lot of fraud baked into the system. That’s not good for anyone, and the fallout from this is not going to be pretty.

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Comments on “Perhaps Wall St. Really Is Just One Big Ponzi Scheme”

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TX CHL Instructor (profile) says:

This can't be good.

This can’t be good. Money is going to go to mattresses, much like it did in the 1930’s.

What a crazy world. Wasn’t it bad enough that we just elected a Chicago politician with an almost completely blank resume to be POTUS?

Yup, things are going to change. Without the 2nd amendment, the rest of the document is just wishful thinking. And we are almost there anyway.

Anonymous Coward says:

Re: This can't be good.

Without the 2nd amendment, the rest of the document is just wishful thinking. And we are almost there anyway.

That is quite possibly the stupidest statement I have ever read. Except maybe for the rest of your asinine comment.

What a crazy world. Isn’t it bad enough we let people like you out on the streets?

And before you reach some other stupid conclusion, I am a gun owner, a conservative and a Christian. You’re just an id10t.

Anonymous Coward says:

Can someone please tell me what the price of a stock is based upon? Profit? Dividend? What? Seems these days share price is based on company performance (profit) irregardless that a $50 stock might only pay $1 in dividend. So tell me again how profit helps me? Why would I buy a stock that has a 2% return? Oh, on the hopes the price goes up? But why would the next guy pay $55 for the stock when that would reduce his return to 1.8%?

Stocks are legalized gambling. Their value is based on nothing more than the hope that the next sucker will pay you more than you payed the last sucker.

If stock prices were based on something real like dividend, we could not have these large swings in the market. As stocks go down, return goes up assuming dividend remains the same.

You are stupid says:

Re: Re:

The value of everything is based on what someone will pay for it.

If a company is profiting, but not paying dividends, it is growing, and hopefully increasing profits further. At some point, a ‘sucker’ will like the looks of that stream of income and pay a lot of money for the stock, or it will stop growing and start paying dividends.

Stock prices are based, in part, on expected dividends, not current dividends.

“As stocks go down, return goes up assuming dividend remains the same” That is making a HUGE assumption. Stocks go down for many reasons, but one of them is that investors don’t think they’ll be able to pay dividends at the same level.

In the future, try regardless instead of irregardless. While irregardless is in the dictionary, it is only used by morons.

Come on says:

Re: Ponzi Scheme?

Here is the difference: Ponzi schemes pay old investors with funds from new investors. Companies(for the most part) pay all investors with the money from the company earns from doing business. Not a small difference.

The market is real. It is based on real value, created by real companies. The values of these companies(like everything else in the world) change. That does not make them any less real.

Twinrova says:

One step closer...

“That’s not good for anyone, and the fallout from this is not going to be pretty.”
We can all only hope this statement is true.

Yes, I know, many of you think I’m completely nuts to expect a depression, but it’s time for one.

Only then will people sit back and redefine what “business” is all about.

Here’s a damn hint for you: IT’S NOT JUST ABOUT PROFITS!

Mike (user link) says:

Perhaps? No, _*definitely*_

From the mythology of “economies always expand” that’s taught in every business school, to the “sucker’s deal” told to every individual investor to “buy and hold” [when every Wall Street firm is doing exactly the opposite with multiple trades per second/minute/hour/day], to the fact that the internationalization of capital markets [such that $$$ can flow *instantly* to other jurisdictions where regulations are less stringent], the whole mess is one big disneyland where emotionally-arrested “men” and “women” get to play with other people’s money at no consequence to themselves [and life-altering consequences to the rest of us].

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