Scams, lies and thiefs

Recently I have been reading a book about Bernard Madoff.

This man has been noted for almost pulling off the worlds greatest scam. He managed to mug America off to the tune of 65 Billion dollars.

That's a lot of money! But how?!

Well he abused trust and he was (evidently) a very, very clever man.

After meeting with a friend of mine today who is in the financial services game, it got me thinking.

My friend works with the mortgage industry and I questioned him as to how I could scam him and the banks. He had a damn good final comment but that's by-the-by.

So, back to Bernie. The reason Madoff was caught was because his sons told the police what he was up to. Basically he used something called a Ponzi scheme to attract thousands of investors.

This is (roughly) how it worked:

- Investor 1 invests 50k on the basis that he will get the money back with a profit of 10%.

and then..

- Investor 2 invests 50k on the basis that he will get the money back with a profit of 10%.

finally..

- Investor 1 receives his 50k with 10% of the money from Investor 2's initial investment cash as 'profit'.

Ponzi complete..

- Investor 1 is amazed! He tells everyone and more people invest.

- Each investor is given money back every now and then until they are investing such large sums of cash, they are happy to be receiving monthly updates of how their 'investments' are doing.

Then a hedge fund is set up and all the investors put their money into the hedge fund which acts as a more long term investment which increases periodically thanks to clever stock market playing.

What is really happening is most of the investment money is now lining the pocket of the hedge fund manager (fake hedge fund) and small amounts are being paid back to investors.

What a fantastic idea?! Part of me has the attitude - If you're dumb enough to fall for it.. However, these types of scams are very clever and often hard to spot so that doesn't necessarily apply.

Now, to know exactly why Madoff did this is hard to figure out. He wasn't completely money hungry and he really had no reason to rip people off at all. He is one of the main people we have to thank for a computerised stock exchange. Thanks to the invention of that, he was in an excellent position (financially).

I think he almost didn't know how fraudulent he was being. He wasn't stupid, he must have known what he was doing but maybe it all got a little out of control?

Either that or he had the biggest balls known to man!

So, running with the idea of massive balls...

I questioned my friend, this is a slightly dramatised version of how the conversation went:

(Bold writing is me, italic writing is my friend)

So if I brought fake payslips to you would you give me a mortgage? I'd already have my loan from the bank which I would be telling you is my inheritance.

That works up to a point but the mortgage company will want to see bank statements, etc.

What if I had fake bank statements?

The mortgage company may check with the bank. Also, you'd fail on your credit score because the money isn't actually inheritance...it's a debt.

What if I invented a fake person, set up a fake bank account, transferred the loan to my new name and then applied with all my fake documents?

What sort of idiot would do that?!

The main problem is that a lot of the banks are interlinked and talk to each other. Anything fake would be pretty easy to find out.

Now, the most important part of the conversation....

Also, why would you even want to do that? Most of the checks (that the mortgage company make) are put in place to make sure you can actually afford the mortgage so even if you did get a mortgage by doing all of this, you wouldn't be able to pay it.

Haha, of course...he's right.

Then I'd effectively have own two names, two debts and wouldn't be able to pay either!

Unless I did a Madoff! - I won't, I'll be honest, my balls are no where near big enough to start trying to pull off large scale scams!

So, it's an interesting thought pattern. It shows how easily these things escalate into a whole world of trouble.

I'm not going to lie, most of this is just dribble coming out of my mouth and being transferred to paper (screen) in a rather poor blog attempt but I hope I get some cogs turning in brains.

Summary

I investigated a scam and it isn't possibly unless you have massive balls and a lot of luck.

I certainly do not condone scams and definitely don't advise them, DON'T DO IT, IT'S NOT WORTH IT!

Now I'm going to make myself a cup of tea, have a cigarette (again, not condoned) and go to bed (after I've had a cigarette and my cup of tea).

Hope I haven't disappointed too much!

Night