To make it simple, he talked people into investing with him. Trouble was, he didn't invest their money.
As time rolled on he simply took the money from the new investors to pay off the old investors. Finally there were too many old investors and not enough money from new investors coming in to keep the payments going. Sound familiar? Lets take a look.
Next thing you know Madoff is one of the most hated men in America and he is off to jail. Some of you know this. But not enough of you.
Madoff did to his investors what the government has been doing to us for over 70 years with Social Security. There is no meaningful difference between the two schemes, except that one was operated by a private individual who is now in jail, and the other is operated by politicians who enjoy perks, privileges and status in spite of their actions.
Do you need a side-by-side comparison here? Well here's a nifty little comparison.
BERNIE MADOFF vs SOCIAL SECURITY
Madoff) Takes money from investors with the promise that the money will be invested and made available to them later.
Government) Takes money from wage earners with the promise that the money will be invested in a "Trust Fund" and made available later.
Madoff) Instead of investing the money Madoff spends it on nice homes in the Hamptons and yachts.
Government) Instead of depositing money in a Trust Fund the politicians use it for general spending and vote buying.
Madoff) When the time comes to pay the investors back, Madoff simply uses some of the new funds from newer investors to pay back the older investors.
Government) When benefits for older investors become due the politicians pay them with money taken from younger and newer wage earners to pay the new beneficiary.
Madoff) When Madoff's scheme is discovered all hell breaks loose. New investors won't give him any more cash.
Government) When Social Security runs out of money they simply force the taxpayers to send them some more.
Bernie Madoff is in jail.
Politicians remain in Washington ...and in office
"The taxpayer: That's someone who works for the federal government but doesn't have to take the civil service examination." [Ronald Reagan]
"If you put the federal government in charge of the Sahara Desert , in five years there'd be a shortage of sand." [Milton Friedman]
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