We all heard the word 'Ponzi' repeateadly by end of 2008. $50 billion Madoff scheme was hard to comprehend. More disturbing was the names of people got hurt in the process - seasoned investors, economists, banks and charities to name a few.Paul Krugman was wondering how Madoff story was different from the investment industry as a whole ? His article convincingly concludes that the story was not very different . Instead of creating value, the whole investment industry was destroying the value of assets .
Financial companies have written off billions of their bad assets, a product of their lax lending practices , and pushed the economy into a financial crisis. Credit markets froze and left many businesses with no operating cash and layoffs. The shareholders lost 7 Trillion - a gain of last 6 years - in just one year. Home prices fell forcing a lot of home investors bankrupt. In short, everyone is some way or other had a negative financial impact in 2008.
There are some good signs in people's behavior - though not necessarily good for the economy to recover.Spending: There is a drastic cut in spending as people manages their finances better. People travel less, eat out less or buy less gifts.
Savings: Other than equities and funds, people are increasingly attracted to gold and low risk instruments as an alternative.
Ponzi schemes will always hunt us in some form - As someone pointed out, Social Security funds may be the biggest legal ponzi scheme -:)
