In the securities transactions world, the accounting function has always supposed to have been an internal and external oversight function. That is why most of the federal and state securities laws filings require audited financial statements, even when the company is a startup and has nothing material to say.

However, sometime ago, the "audited" financial statements became more of a cover to securities issuers than something the public could rely upon. Many of the issuers' law firms have been able to convince/coerce accounting firms to provide cover for less than legal processes and less than transparent "transparency" (think Enron).

This is a problem that has been in existence for at least 25-30 years. The SEC and the financial industry have been aware of the use of accounting firms for false cover for just as long. After Enron, the SEC actually issued rules to tighten up this area, which have since been watered down or reversed or parsed to oblivion.

No matter what Wall Street or K Street say, strong regulation of our financial sector is essential to a lively and fair "free market" economy.

Wonder when our leaders will really get this??

Accounting is supposed to use both inductive and deductive reasoning. Until there are laws put in place that compel larger corporations to undergo audits by accounting firms not of their choosing, this will never end.

Mrs. P's supposition makes sense to me. Yesterday I was poking around on a site the NY Times linked to (Dealbook?) and there were a series of short articles, many with comments. One article mentioned that what is so uncharacteristic here is that Madoff admits everything - which never happens!

Well, if other crooks never claim guilt, then why else is he doing it except to try and save the skins of others?

Every time these things happen, it turns out there was lots and lots of evidence lying around that should have tipped people off.

This morning Mr. TheraP and I were trying to imagine how an extended family would spend or stash 50 billion. We imagined homes and yachts and planes and artwork. But it takes a lot of things to get to such a number.

I agree with the Facilitatrix - it's stashed somewhere or the guy had colossal losses or maybe he actually "returned" "so-called profits" on a yearly basis, thus depleting the money if he didn't get enough new customers. A mystery!

TheraP -

Ponzi schemes are the Circus Rule writ large. Mr. Madoff's Ponzi scheme is no exception. For a long time Mr. Madoff fooled everyone that mattered. Some were fooled by guile, others were fooled by their own willing suspension of disbelief.

Ponzi schemes work because the money from new investors is sufficient both to provide income to the old investors and to purchase enough securities to fool those inclined to make inquiry or redeem their investments.

Ponzi schemes fail when there is not enough new money to either provide enough income to satisfy investors or enough assets to cash out old investors.

Mr. Madoff confessed because in this economic environment he no longer had enough money coming in from new investors to prevent the failure of his scheme.

Mr. Madoff may have skimmed off the odd hundred million here and there but the bulk of the money he collected probably was lost in investment transactions or paid to those investors who were the first to cash outs their investments in Mr. Madoff's scheme.

Thera, Facilitrix, Favius,

We don't have enough information to know whether the $50 billion is a good number. Madoff's clients who have come forward thought they had $24 billion invested with him. My guess is that the numbers include the original investment plus profits.

Madoff's own net worth has not been disclosed. Over the years, he may have stashed money away or put it in trust for his children. But I don't think he will be able to hang on to it.

Madoff is the one who said $50 billion. There are probably investors who lost money but don't want their names in the paper.

I'm curious if Madoff told anyone to cash out early.