Madoff Undone

Bernie turned to his Controller:  "So what are you telling me?".
"We can't sustain this rate of payout, our returns are far below what was promised and the cash outflow doesn't match them", Walter Reed said nervously.
"But we have enough cash coming in"
"Yes, but that's new cash that needs to earn its own return for its investors, if we use that cash to...."
"I know what you're saying but I'm not going out there and telling these investors that the Madoff fund is offering a lower return than last year", Madoff said irritably.
The Chief Counsel, Walter Mitty broke in: "But Bernie, that's fraud!  If you offer returns that you can't deliver on and you know the money isn't there to pay them off as promised, you have to disclose.  You can't tell them that all is hunky dory and that they'll get their money when they won't".
Bernie Madoff gazed at the skyline and then turned back to his advisors.  "We'll make it cashflow, we'll fix it, but later.  Right now we have to get through this new investor meeting.  We need that cash."

He stood up, opened the door to the theatre and strode down the aisle, up the stairs and to the podium.  He licked his lips and broke into a broad smile.  "Ladies and gentlemen, I am pleased to announce that the Madoff Fund has had another great year!.  It's a great investment and I'd like to make all of you investors in it!"

Act Two

Dickie turned to the Comptroller:  "So what are you telling me?".  

"We can't sustain this rate of payout, our returns are far below what was promised and the cash outflow doesn't match them", Walter Reed said nervously.

"But we have enough cash coming in"

"Yes, but that's new cash that needs to earn its own return for its beneficiaries, if we use that cash to...."

"I know what you're saying but I'm not going out there and telling these investors that Medicare and Social Security is offering lower benefits to future retirees than in the past", Gephardt said irritably.

The Chief Counsel, Walter Mitty broke in: "But Dickie, that's fraud!  If you offer returns that you can't deliver on and you know the money isn't there to pay them off as promised, you have to disclose.  You can't tell them that all is hunky dory and that they'll get their benefits when they won't".

Dickie Gephardt gazed at the skyline and then turned to his advisors.   "We'll make it cashflow, we'll fix it, but later.  Right now we have to get through this new investor meeting.  We need that cash."

He stood up, opened the door to the theatre and strode down the aisle, up the stairs and to the podium.  He licked his lips and broke into a broad smile.  "Ladies and gentlemen, I am pleased to announce that Social Security and Medicare  will be there for you when you retire!  The government will keep it's promises in full.  You can pay your taxes with confidence!"

Deja vu all over again.