The first rule of running a Ponzi scheme is to take the money you're stealing. Madoff may have looted $50 billion from his clients accounts, but that doesn't mean he actually has $50 billion squirrelled away somewhere. If he did, he wouldn't have broken down and confessed, he would have gotten some plastic surgery and a new passport (or a new country to issue him one -- $50 billion is a lot) and gone to live in the south of somewhere. Instead, he put whatever money he skimmed into the same lousy investments as the the money that was coming in. (That's probably the biggest piece of evidence that he didn't start out completely crooked.)

I think Josh is right when he says that there's not that much difference between Madoff and the mark-to-model crowd. Banks (and things that claim for regulatory purposes not to be banks) always use new depositors' money to pay off old ones, because the old depositors' money is invested somewhere. That's how banks work: money is fungible. The difference between that and Ponzi is supposed to be that the bank has enough assets to pay off all its depositors, assuming the assets were sold in an orderly fashion and not a fire sale. But then you get mark-to-model, where the bank or bank-equivalent really has more of a promise that its analysts truly believe it has enough assets to cover deposits if the assets perform the way the analysts think they will, and you're treading awfully close to Ponzi territory. Then, when you get executives arguing against changes to the model that would make the assets look less valuable you've stepped right over the border and set up shop near the capitol. People who run real Ponzi schemes don't bother with huge staffs of analysts running rigged models, they just make up the numbers outright, but the intent and the effect are the same.

But that brings you back to the beginning, because the Masters of the Universe (mostly) didn't have the brains to take the money they were skimming out of the system either. It's just gone. Usually, when you run a scam, you end up with a mark who has less money and a scammer who has more, but here the scammers are stuck with the same worthless investments as their marks. Sure, they took out millions of dollars in salary and bonuses, but that's nothing to the amounts of money they had in play. And then they took most of those millions and invested them right back in the market they themselves were running into the ground. So a few people are a little richer by all this, but most of the money is just plain vanished.