100 people own 1000 shares of stock each which are worth 1000 dollars.

Fine.. all of them are millionaires.

Now a 101'st person wants to buy some stock and the best price he can get is 1001 dollars.

Now all of them are worth MORE than a million dollars!

Now someone wants to sell-- and he can't find a buye for more than 950 dollars.

Instantly-- none of them are millionaires.

Having a million dollars in any asset except cash or bonds isn't real money.

The instant anyone tries to exit-- they lower the value for everyone.

As all 100 people try to exit, some may find the stock is really only worth 100 dollars.

When a stock has a dividend, it has a real value-- that's about 15 to 20x earnings (since you have growth potential + a good yield compared to bonds).

For stocks which have no dividend, the fundamentally have no value.

They used to be worth the breakup value of the company. But now companies are borrowing money with first claim on their assets. So stocks (and increasingly corporate bonds) are worth -- nothing.

And even when you have cash-- it still gets tricky.

If everyone goes to cash, then things get very expensive in terms of cash.

If the government creates a ton of money, the purchasing power of your existing cash drops as inflation raises prices.

i think the description in its simplistic way captures a number of fundamental points. of course the bonuses are often in real money

And then there is Bernie...

By himself he destroyed 50,000 millionaires worth of money so he probably destroyed about 10,000 to 20,000 actual millionaires.

According to one recent news article. He somehow managed to come out ahead of Big Bad Dick Cheney.

I wonder if Bernie will be someone's 'boyfriend' in prison.

Of course we don't approve of that sort of thing anymore. Politically incorrect to even bring it up.

I apologize in advance to anyone who is offended by the notion of Bernard Madoff being raped in prison.

Honestly don't know why I mentioned it.

Apparently Madoff has "enemies" behind the bars already. From an article I read last week, there are reports of certain individuals that are looking forward to bettering their reputation within the system by being the one that "knocks off" Madoff. I'll give Madof no more than a year before he's carried out horizontally.

One thing I've never seen (although I admit I haven't looked too hard to find out) is a straight accounting of in the Madoff case is whether the $50Bil number was the actual money into the fund which was largely lost by the investors or if it was the peak value he claimed was in the fund (much of which never actually existed). Either way it doesn't make what he did any less fraudulent, I just wonder if maybe the fraudulent number is being reported as real to make for a more sensational headline.

It wouldn't be inconsistent to report the virtual number. After all, the "banks" reported losing the notional value of all the derivatives they had swapped although that value was also virtual - as is most of the money claimed to be in the stock market. Stock values are commonly based on the most recent known (that is another limiting factor) transaction. That would only be a valid price if all of the holders could market their holdings at the same time and draw that price.

The difference there is that the banks have accounting rules (even in the supposed "wild west" of "deregulation" of the Bush era, accounting standards and SEC reporting rules existed along with FDIC rules and additional requirements originating from the Fed and SarbOx to name a few) governing how they can and can't account for the value of a particular piece of paper, and more rules governing how they are supposed to account for changes to those values. The only thing that lacked regulation was the transparency as to how some of those pieces of paper actually corresponded to what those holding them had been led believe. Much of the seisure of the credit system last year was in part due to the interactions between market uncertainty when the wheels cam off the derivatives cart and the regulations on the banks regarding how heavily they could leverage their more secure assets (at least we didn't go the way of iceland and allow 100-to-1 ratios).

In the case of the news reporting headlines, the only marginally binding rules are libel and slander statutes (which wouldn't apply since they can point to a document implying that the $50Bil was somehow a valid number. What worries me about it is that reporting based on that number could lead to political pressure for enforcement authorities to actually keep looking for that sum until they have tracked down a large portion of it; if much of that amount never actually existed, that would mean potentially wasting investigative resources which would be better spent on other cases than on trying to hunt down something which never existed and therefore can never be found.

Also, it can give the impression that Madoff somehow enriched himself (and/or his family) by $50Bil in the course of robbing his clients when in reality he may not have truly stolen much (any compensation he drew based on fraudulent performance of the investments would be theft of a sort but wouldn't possibly account for the entirety of the fund's value) in the course of defrauding clients into believing their investments had grown when in fact they had shrunk or vanished (which is no less criminal, but it is a different crime).

Madoff himself claimed at one point that he had always intended to deliver the returns which he had told his clients were there, but that could well be nothing more than an attempt to put a positive spin on the situation (and the jury decided it was either not the case or was irrelevant in any event).

From what I read about Mr. Ponzi, he truly believed that, given time, he would turn a profit for his clients. It was not his plan to rob them, he just wasn't as good at what he attempted as he needed to be to pull it off.