“A Ponzi scheme is a fraud in which invested money is pocketed by the schemer and investors who wish to redeem their money are actually paid out of proceeds from new investors. As long as new investors are expanding at a healthy rate, the schemer is able to keep the fraud going. Once investments begin to contract, as trough a run on the company, the house of cards quickly collapses. That is what happened with the Madoff scam”. Stephen Greenspan, “Why we keep falling for financial scams”.
1. Explain why the Madoff scam could exist for so long.
1. Explain why manias and financial frauds will continue to occur and why they are difficult to extinguish.
1. Discuss the extent to which such behaviors account for past, present and future financial crises.
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