Bernie Madoff and the 50 Billion Dollars

Poof! 50 Billion Dollars have disappeared. Where did they go?

I think it is safe to say that Bernie Madoff does not have a secret vault with 50 Billion in gold, so where is it?

1. The idea of a Ponzi scheme is that early investors make great returns and this encourages more investors to put money in. The problem is that the "gains" of the early investors are paid by the contributions of the latter investors. So some of the loss is just a function of a zero-sum-game: Some people lost money and others gained money.

2. The news stories lack sufficient detail to really know, but I suspect that the 50 Billion amount is not based upon what was payed-in, but rather on the values claimed on investor's statements. This value was always just a fiction, but if you pulled your money out a few months ago they would have payed-out the full statement value.

3. Trading losses: Madoff's company had to put the money somewhere and given the market conditions, they probably did loose whatever money they actually had in real financial markets.

Other thoughts:

Did Bernie Madoff think he could just keep this scam going forever? He did keep it going for decades, so maybe that was in fact his plan. I would have trouble sleeping at night with a plan like that.