Guys, can we just get one thing straight about Bernie Madoff?
Yes, I know he lost $50 billion, he\’s bankrupted an awful lot of people with his Ponzi scheme.
But, contrary to what Richard Murphy is saying this does not show that hedge funds need more regulation.
Because, you see, Bernie Madoff wasn\’t running a hedge fund.
No, this isn\’t trivial pendantry.
Mr. Madoff was not running an actual hedge fund, but instead managing accounts for investors inside his own securities firm. The difference, though seemingly minor, is crucial. Hedge funds typically hold their portfolios at banks and brokerage firms like JPMorgan Chase and Goldman Sachs. Outside auditors can check with those banks and brokerage firms to make sure the funds exist…
If he had been running a hedge fund then he wouldn\’t have been able to do what he did do as a result of the regulations about the way that hedge funds operate.
As Brad Delong says:
Surely this is an argument for more hedge funds? For more separation of portfolio and custodial functions?
From what we know so far Madoff was running one of the simplest (if on a massively large scale) financial scams known, the pyramid scheme. This has precisely sweet fuck all to do with hedge funds or any need for greater (or indeed lesser) regulation upon them.