Imagine a Major League Baseball player batting .966 and no one suspecting a cheat...
That's how Harry Markopolos, a private financial fraud investigator, described it.
Markopolos was referring to Bernie Madoff's claimed investment returns. Supposedly, Madoff's fund only had three down months out of 87.
Of course, Madoff wasn't batting .966. His $65 billion Ponzi scheme was the largest in world history.
Markopolos stands out because he uncovered Madoff's fraud yearsbefore the 2008 financial crisis exposed it to everyone else, collapsing Madoff's fund in the process.
The thing is, the fraud wasn't sophisticated. It only took Markopolos five minutes to figure out that the numbers didn't add up.
Within hours, he could mathematically prove that Madoff was running a Ponzi scheme.
Markopolos proceeded to gather meticulous evidence. He alerted the Securities and Exchange Commission (SEC)-the federal agency that ostensibly protects investors-as early as 2000. But nobody there cared.
Years went by. Markopolos continued to press the SEC. But they continued to do nothing.
So, Madoff's Ponzi scheme continued. It sucked in untold billions of doomed capital, and eventually wiped out droves of investors.
It's a prime example of what can go wrong when people accept the false sense of security government agencies offer.
Now, a Ponzi scheme can only last as long as new money flows in to pay existing investors. In the end, it was the 2008 financial crisis that finally brought Madoff down.
The market meltdown caused a surge in redemptions from Madoff's fund, which quickly exhausted his Chase account. This forced him to admit the whole thing was a scam.
By December 2008, the plain truth that was so clear to Markopolos eight years earlier was now clear to everyone else.
The point here is that frauds of historical proportion can hide and fester in plain sight for years, even decades.
I'm about to tell you about one that dwarfs Madoff's record Ponzi scheme...
I have no doubt that the next financial crisis-which I believe is not far off-will make the scheme crumble, just like the 2008 crisis did to Madoff's fund.
Government employees get to do a lot of things that would land ordinary citizens in prison.
For example, it's legal for them to threaten and commit offensive, rather than defensive, violence. They can take other people's property without consent. They can spy on people's emails, bank accounts, and smartphones whenever they please.
They go trillions of dollars into debt and stick the next generation with the bill. They counterfeit the currency. They lie with misleading statistics and use accounting wizardry no private business could get away with.
And that just scratches the surface...
The Government also gets to run a special type of Ponzi scheme.
According to the Merriam-Webster dictionary, a Ponzi scheme is:
[A]n investment swindle in which some early investors are paid off with money put up by later ones in order to encourage more and bigger risks.
In the private sector, people who run Ponzi schemes-like Bernie Madoff-are rightly punished. But when the government runs a Ponzi scheme, something very different happens...
When the Money Runs Out
Of course, politicians only care about the next election. So there's no way to hold them accountable in the long term. That's why they automatically do the most expedient and irresponsible thing.