Jamesian Philosophy Refreshed

  I'm sure I've mentioned in earlier posts the notorious Bernie Madoff, who ran Bernard L. Madoff Investment Securities LLC from the day he started it up in 1960 until the day he surrendered to authorities in December 2008.   Madoff’s crime, in common parlance, is that he was running a “Ponzi scheme.” This is a fraud in which early depositors are told their money has been invested in some wonderfully productive/reliable way, and they are receiving a share of the profits, when in fact what they are  receiving are phony paper returns, from the deposits of other suckers. In Madoff’s case, the Ponzi scheme seems to have been adopted in a very cold-blooded way and operated for decades before it finally became unsustainable. I mention him here because I've been giving some thought to the fact that sometimes the development of a Ponzi scheme is not quite so cold-blooded. Sometimes an asset manager will bumble into running a Ponzi scheme by degrees. [I a...

Unless memory fails me, we have never before discussed on this blog the crash of something-or-other at a ranch near Roswell, New Mexico on July 7, 1947. I bring it up now only to say that Roswell, and the much-discussed theory that the crash was of an alien flying saucer, makes a brief appearance in the recent book by Guy Lawson: Octopus: Sam Israel, the Secret Market, and Wall Street's Wildest Con. The gist of Lawson's book is difficult to explain, but I'll dive in anyway. Sam Israel was one of the three principals of a high-flying hedge fund in the early years of the 21st century, a hedge fund called Bayou Capital, though it was run out of Fairfield County, Connecticut. It was called Bayou in recognition of Israel's renown Louisianan family. In 2005, CNN Money described Bayou's collapse as "one of the most bizarre hedge fund blowups in recent years." But they didn't know the half of it. What Lawson focuses on is the strange confidence th...